According to a report by private equity firm Bain, domestic software-as-a-service (SaaS) firms are on track to reach an annual revenue run rate (ARR) of $35 billion by 2027. According to Bain & Company’s India SaaS Report 2022, homegrown SaaS firms had a $12-13 billion ARR last year and are expected to grow at a 20-25% annualised rate through 2027. This translates into a threefold increase over the next five years when compared to 2022.
US tech companies, including Meta, Amazon, Google, Microsoft, and others, are currently in the midst of an economic downturn that has resulted in mass layoffs in a high-interest-rate regime in the US.
Currently, 14 of the 1,600 SaaS companies in India that have received funding in the last five years have annual recurring revenues of more than $100 million, up from around five in 2020. This figure is expected to reach 30-40 in the next three years, according to Aditya Shukla, a partner at Bain & Company.
The sector’s optimism is supported by three key factors that give Indian players an advantage: product leadership, attractive pricing, and high service quality. This figure is expected to reach 30-40 in the next three years, according to Aditya Shukla, a partner at Bain & Company.
According to Shukla, Indian firms benefit as well because they have a ‘talent arbitrage,’ or a large pool of India-based talent that offers back-end services, allowing firms to offer attractive pricing to their global customers. According to the report, despite the fact that Indian players operate globally, the top 20 firms generate roughly 60% of their revenue in the United States.
According to the report, Indian firms serve only 20% of the nearly $150 billion US SaaS market, creating a significant growth opportunity.
According to Bain & Company, the total number of investor exits will more than quadruple in 2022 from ten in 2019. Annual funding in the sector increased by a similar amount, from $1.3 billion in 2019 to $5.1 billion in the previous year.
Even as funding momentum slowed in 2022, investments in Indian SaaS reached $5.1, up 20% from the previous year, owing primarily to investments in the first quarter. The softening market sentiment has also impacted the SaaS sector, with investment falling by about 40% year on year. This decrease is concentrated in late-stage transactions, with increased interest in early-stage companies.
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