Bessemer Venture Partners, a leading global venture capital and private equity firm released its flagship ‘The Rise of SaaS in India’ report today, analysing India’s Software-as-a-Service (SaaS) market. The report forecasts an impressive growth trajectory for the Indian SaaS industry, projected to reach $50 billion by 2030, and Indian SaaS centaurs and unicorns will generate revenues of $20-$25 billion by 2030. The firm believes that Indian SaaS companies have a unique efficiency advantage that will allow them to benefit in the current macroeconomic climate. In addition, the rich pool of AI and software talent in India has positioned SaaS companies for strong growth.
Bessemer sheds light on the investment trends observed in the sector and reveals that 2022 witnessed a significant increase, with almost $6 billion investments in Indian SaaS companies. The report highlights India’s inherent efficiency advantage, placing us in a better position than the global counterparts. It further predicts that Indian SaaS companies will lead the productisation of services by integrating human expertise, efficient workflows, and advanced AI capabilities.
Anant Vidur Puri, Partner, Bessemer Venture Partners says “2023 is the year of efficient entrepreneurship. We believe that in the current macro-economic climate, there is a significant premium on efficiency. Thus, Indian companies – which are fundamentally more efficient than their global counterparts – have a significant advantage, and this will be a major tailwind in their journey towards becoming global leaders. The efficiency advantage flows from a culture of effectiveness and a multi-product strategy. Higher efficiency companies will generate higher shareholder returns and will be more sought after than lower efficiency companies.”
The report points out the signs of maturity for the ecosystem with centaurs – private SaaS businesses crossing the $100 million ARR mark — records new milestones of success in the cloud world. In India, there are at least 11 SaaS businesses belonging to this category with three new businesses added last year. This is a sign favoring the strong fundamentals of the Indian SaaS ecosystem applied today.
Bessemer explores a year-on-year comparison and delves deep to share key predictions for the future of India’s SaaS market. Below are the forecasts from the 2023 edition –
Prediction 1: Indian companies’ efficiency advantage will aid them on their path to global leadership – In today’s macroeconomic environment, there is a high premium on efficiency. Hence, building on the prediction from last year about the ascent of global category creators and leaders, the report highlights India’s inherent efficiency advantage, which places Indian SaaS companies in a better position compared to its global counterparts. At Bessemer, we define efficiency for mature companies as Revenue Growth + FCF% and for early-stage companies as Net New ARR / Net Burn.
Prediction 2: New cloud infrastructure will emerge to power traditional financial services – Last year, the report mentioned the emergence as well as impact of software products and solutions enabling efficiency in banking services, changing dynamics of the overall infrastructure. 2023 prediction states the emergence of new cloud infrastructure that will enable manufacturers, democratise distribution and support the core banking system that is undergoing a lightning transformation.
Prediction 3: UPI will create SaaS and infrastructure opportunities across a wide spectrum – India leads the digital payments revolution, with Payment to Merchant (P2M) transactions expected to grow 3X, creating a $1.2 trillion market by 2026. Anticipating that two-thirds of digital merchant payments will utilise UPI by 2026, Bessemer foresees exciting opportunities in Credit on UPI and UPI infrastructure, driving the next wave of payments industry disruption.
Prediction 4: Pharmaceutical industry’s adoption of cloud software – The industry is expected to adopt digital interactions over the next 3-5 years. To engage more efficiently, businesses will embrace innovative and cost-effective methods through SaaS solutions that offer vast potential for improving sales and marketing operations, including doctor engagement, field force productivity, and digital detailing..
Prediction 5: AI-first companies leading productisation of services – Indian software developers are embracing AI with enthusiasm, with 46% already incorporating AI into their tools, ranking India as the world’s second-highest in AI utilisation. Approximately 84% of Indian developers plan to integrate AI into their development processes, leading the global trend. Emerging India as a leading hub for open-source AI projects. The report predicts that Indian SaaS companies will lead the productisation of services by integrating human expertise, efficient workflows, and advanced AI capabilities.
“AI will not replace humans; instead, it will augment and support them. India’s wealth of AI talent positions the country uniquely to harness this collaborative potential, setting the stage for exceptional companies to automate processes, accelerate operations, and enhance service accuracy.
The widespread adoption of AI reflects a forward-thinking mindset and a commitment to leverage cutting-edge technologies for innovation and growth. With the integration of AI into cloud software, we anticipate a significant ‘Productisation of Services’ opportunity. We have already invested in several AI native companies like Perfios, Lentra, Entropik, Leena, PepperContent and are excited about the immense potential in India for leveraging AI-powered cloud software, and at Bessemer, we have committed $1 billion to invest in this field”, adds Anant.
The Rise of SaaS in India 2023 report offers an update on the cloud ecosystem, impact on valuations and interest rates, the emergence of AI-powered cloud software, paving the way for cutting-edge advancements and global leadership. The SaaS market in India remains a leading global hub for innovation. Its inherent efficiency is particularly advantageous in the current macro-economic environment.