The unfair advantage Indian SaaS startups have over counterparts around the world

Photo credit: Pixabay.

(This article was co-authored with Prasanna Krishnamoorthy and is part of a series of articles on the emerging SaaS story in India.)

There are so many ways to tell the SaaS story blooming in India, where people are discovering there’s more to internet startups than ecommerce.

We could start by throwing some numbers at you.

• 6,100 tech startups selling software-as-a-service have sprouted in India since 2010.
• 630 SaaS companies raised US$1.98 billion in external capital investment in the past seven years. (Source: Tracxn)
• A handful of SaaS companies rake in annual revenues of over US$100 million.
• Zoho, the big daddy of India’s SaaS wave, is sitting pretty at the top with revenues around US$300 million.
• Zoho and Freshworks, which employ over 4,000 employees between them, have created a massive ecosystem in Chennai for SaaS startups to be created.

Well, the numbers are just conversation starters. This story will unfold with a hero: a startup from Chennai, India’s SaaS capital with the highest concentration of startups selling software-as-a-service on the cloud.

Our hero is not one you’ve heard about a million times in the media with multiple venture capital funding announcements. It’s a company which has tasted failure twice before arriving at a winning formula, capitalizing on some unique advantages that SaaS startups have in India.

OrangeScape’s third product – workflow automation software Kissflow – is currently earning annual recurring revenues just south of US$10 million with an enviable gross margin of 83-85 percent. What makes it sweeter is that Kissflow was built almost entirely on customer capital – and revenue earned.

The most powerful lure for SaaS is that it is a recurring business. “This month, even if I don’t sell to a single customer for some weird reason, I will still be making money – whatever we earned last month will come in this month too. That helps us invest all the money in growth, without worrying too much [about sales],” founder and CEO of OrangeScape Suresh Sambandam tells me.

See: SaaS founders share 5 steps to success

Unfair advantage

In the funding boom of 2015, 1,341 SaaS startups were founded in India, according to Tracxn’s database. In 2016, the number was 707. This year so far, 26 new companies have started building SaaS products out of the country.

While a chunk of them might have been fueled by irrational exuberance – probably lured by reports of startups raising millions of dollars in funding, especially in 2015 – most others are riding on a couple of unfair advantages India enjoys in the SaaS landscape.

India’s tech talent pool, for one. For three or four decades India has been the world’s top outsourcing destination for IT services. “In the last 25 years, every global software company worth its salt has had its own development center in India as well,” points out Alok Goyal, one of the founders of Stellaris Venture Partners, which has a US$100 million maiden fund. “So it’s not that they are simply outsourcing tech services to India but they have their own captive centers here. Initially, these captives were only maintaining old software products of the companies, but lately, they have been developing cutting-edge new products, too.”

Before starting Stellaris with Ritesh Banglani and Rahul Chowdhri, Goyal and his co-founders were investors with Helion Venture Partners. Goyal had led Helion’s investments in Indian SaaS companies Whatfix, Axtria, Pipemonk (acquired by Freshworks), and Linguanext (acquired by Fidel Technologies).

Turning point

It started with…