While it is clear that the Covid-19 pandemic and related lockdown/social distancing has impacted almost all businesses globally, there are some sectors particularly within technology that are experiencing tailwinds. Especially the ones that make work or business continuity from home more productive and safe, like cloud-based SaaS software companies, says Venkat Vallabhaneni, managing partner, Inflexor Ventures, an early-stage, sector agnostic tech VC fund. “SaaS companies have an edge as they are asset light with quick and easy DIY type adoption, have recurring revenue models and also lend themselves well to WFH,” he tells Sudhir Chowdhary in a recent interview. Excerpts:
Why are you focusing on deep tech and SaaS at Inflexor? Is the SaaS space in India yet to achieve its full glory?
Jatin Desai (managing partner) and I both come with a strong technology background—having set up and led technology divisions for global banks, and also having scaled our own tech focused ventures in the past. Deep tech/SaaS are an obvious choice for our investment thesis/ethos. Also, SaaS companies have an edge as they are asset light, offer quick and easy adoption, offer non-linear growth and have recurring revenue models.
We are a sector-agnostic fund, looking for products leveraging strong technology/IP/innovation to differentiate and create a mark for themselves in domestic and international markets. B2B, enterprise software platforms are where our sweet spot lies. Having said that, we are comfortable investing in selective B2C consumer tech and products with differentiated business model and technology IP.
Indian SaaS industry has 1,000-plus companies, generating revenues of $3.5 billion in FY20. Around 150 companies out of these generated an ARR of more than $1 million. Around seven of them are unicorns with the likes of Zoho, Freshworks, Druva, Postman, etc. And 75% of the demand for Indian SaaS products comes from overseas. If this is any indication, we have great things to be witnessed from this space in the future.
Do you see any challenges in SaaS startups post Covid?
While the pandemic and related lockdown has impacted almost all businesses globally, there are some sectors particularly within technology, like cloud-based SaaS software companies, that are experiencing tailwinds. Especially the ones that make work or business continuity from home more productive and safe, or OTT platforms with their endless choice of content to keep people entertained.
Another SaaS based industry which has seen substantial uptick in Covid-19 times is edutech with significant interest from K-12 kids as well as millennials looking to upskill themselves from the comfort of their homes. Our Fund–I portfolio companies offering SaaS solutions in EduTech, cybersecurity, automation are seeing some significant tailwinds with actual sales or in-bound leads up by 3X to 4X compared to pre-Covid-19 times.
SaaS was a fairly new term/ concept back in 2015, with slow adoption on both B2B and B2C fronts. But with increased awareness of its benefits, it has become a preferred business model. Covid-19 has given it the necessary push for rapid digitalisation and acceleration in digital adoption by users.
Which are the sectors that you focus on?
Few of the sectors that we are focusing more from our Fund–II are fintech, healthtech, edutech, consumer tech and also opportunistic sectors such as space tech. From a SaaS perspective, the maximum emergence we are observing is from healthtech with several startups offering EMR maintenance, efficient last mile distribution of medicines, B2B platforms assisting with scans for quick diagnosis of Covid-19 and other ailments, etc.
Another space would be enterprise tech offering B2B solutions to not only improve their internal processes but also increase their reach and revenues.
What is the opportunity available for SaaS in India and globally?
SaaS companies (from the mid players to the world giants) has been receiving immense traction, especially in the last few months and is expected to continue so. VCs investing $32 billion globally in 2019 in SaaS companies clearly demonstrate the faith they have in their growth. India has the geographical advantage to price its SaaS products substantially lower compared to its global peers, to attract customers.
Also, India’s young demographic (forming a significant portion of India’s huge user base) with its massive consumption of easily accessible internet content becomes a magnet for companies to setup as well as invest in India.