Indian software-as-a-service (SaaS) companies will collectively reach around $35 billion in annual recurring revenue (ARR) and capture about 8% of the global SaaS market over the next five years, according to a report by Bain & Company.
The Indian SaaS landscape has matured rapidly over the past five years, expanding on every dimension from total ARR to investment—making it the second largest SaaS ecosystem globally, the report says.
Of the 1,600 Indian SaaS companies that have now been funded over the past five years, around 14 of them exceed $100 million in ARR and are reaching this growth milestone as quickly as their US counterparts.
Encouraged by this growth, investment in Indian SaaS reached an all-time high of around $5 billion in 2022, bolstered by a record $1 billion investment in Securonix, the report says.
From the second quarter of 2022, there has been a 40% decline in investments compared with 2021 as global investor sentiment has softened.
However, over 70% of investors expect to increase their investment in Indian SaaS going forward.
“We see long-term tailwinds for Indian SaaS as companies continue to build winning product offerings and refine their growth playbooks while benefitting from a highly robust investor ecosystem. We expect Indian SaaS growth of 20% to 25% per annum over the next 5 years to reach close to $35 billion in ARR by 2027, with a nearly 8% share of the global SaaS market,” says Bain & Company.
“In the future, buyer sentiment in SaaS will remain broadly positive, with approximately 65% of enterprise software decision makers expecting to increase their 2023 software budgets; however, sentiment has clearly softened since the second quarter of 2022 when close to 80% of decision makers expected an increase,” the report says.
Growth has primarily been driven by increased interest in earlier-stage deals; there are more seed deals happening (up 65% versus 2021) that are larger ($1.7 million vs. $1.3 million average in 2021), while the number of Series A investments have nearly doubled (up 90% vs. 2021) as a greater supply of companies meets more early-stage capital across existing and new investors.
However, later-stage deals have become smaller ($75 million average vs. $100 million in 2021) as some of the largest Indian SaaS companies choose not to raise funds in prevailing market conditions.
The outlook for Indian SaaS investment remains broadly positive over the next 12 months, with around 90% expecting to increase or maintain their capital allocation to SaaS driven by strong business economics, path to scale, and successful exit trends.
“Numerous Indian SaaS companies are at an IPO-ready scale (more than $100 million ARR). Going forward, as capital markets recover, going public will require a well-defined pre- and post-IPO strategy, a compelling equity story, thoughtful timing, and technical readiness,” says the Bain report.
