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#022 India to a take a leadership position in the Global SaaS Market

Wed, 23 Feb 2022 11:49:48 GMT

Cornerstone Ventures

The Market Shift: $300 billion of new value to capture

While the global SaaS market is expected to grow to more than $1 Trillion in the next 5-7 years, India’s share of this opportunity is rapidly moving to 30%+ of this market!

Currently, the global SaaS market is worth, $250-300 billion, with India’s share at about 7-9%, that’s a little short of ~$20 billion (refer: Bain’s India SaaS report), but by 2027-9, it would be ~30% of a $ trillion market, that’s about $300 billion in terms of the size of market that Indian SaaS firms will capture!

It’s this market shift that we are investing in - a 15X growth in the opportunity base itself ($20 billion to $300 billion) – we will capture some the most promising opportunities that drive this market shift over the next few years!

India has the DNA for capitalizing on this Market Shift:

India has been a world leader in IT Services for decades – we know how to build Enterprise Applications – traditionally ‘on premise’; as the world moves towards cloud adoption and productization of these capabilities, who better positioned that India to productize these capabilities and switch over to SaaS models!
We have the talent pool (5 million plus developers), we have the domain knowledge, we know how to work with a large global Enterprise client base – we have done this for decades!
Our talent pools are positioned to rapidly adopt SaaS models for software-delivery – and we are already witnessing this market shift accelerate (about 30% of our developer pool is already working on SaaS models)!
We believe the next 5 years will see the share of SaaS-model based software applications only exponentially increase, leading to a massive unlock of opportunities for India to capture!

India SaaS – ‘timing matters’ – valuations are most attractive today:

Early / Emerging growth stage (i.e., Pre-A / Series-A) SaaS companies in mature markets such as the US market, are being valued at 20/30X of their established recurring ARRs (Exit ARR basis).

Interestingly in India, we are still able to value such companies anywhere between 5-10X based on model, potential, traction established, existing commitments, etc. (clearly a sane valuation multiple)

This creates a very interesting opportunity to go into these companies at attractive (rather palatable valuations) and take a ‘reasonable’ stake to position ourselves for good value realization through the growth journey of these investee companies.

For instance, once these companies establish good global traction (with the help of our invested capital for growth), their next rounds happen at much higher multiples, therefore giving us not only the benefit of the growth achieved in ARR but also the benefit of a ‘step-change’ in the valuation multiples that are realized in the future investment rounds.

We are positioned to be able to reach the desired 10-20X growth in the value of our stake rather quickly and without the need of our investee companies reaching unicorn status to achieve such an outcome for our investment.

We believe this opportunity window will continue to be available to us for the next 2-3 years at most, as the Indian SaaS market catches up with the mature markets in terms of valuation norms!

~Abhishek

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Any information provided on this website or any of the other digital assets owned & maintained by Cornerstone Venture Partners Fund, Mumbai, India (“CSVP”)and managed by the Investment Manager, Cornerstone Ventures Investment Advisers LLP, Mumbai India, does not constitute investment advice or investment recommendation nor does it constitute an offer to buy or sell or a solicitation of an offer to buy or sell shares or units in any of the investment funds or other financial instruments.

The Cornerstone Global Enterprise SaaS Index (“CGES Index”) ™ is a trademark of CSVP. The CGES Index is created & maintained using a proprietary algorithm and is to be used for informational purpose only. It is not to be construed as an investment advice or investment recommendation in any of the constituent companies / stocks that are directly or indirectly part of the Index. The Index is created using publicly available data published on the websites of the respective companies. All data presented is as per our internal research and analysis leveraging publicly available data and is being presented only for academic deliberation and discussion purposes and is not to be viewed as any specific commentary / recommendation / evaluation / conclusion on any of the companies / stocks that are directly or indirectly part of the CGES Index.

CSVP also analyses, maintains, and publishes certain financial and non-financial metrics (“SaaS Metrics”) on the Index at an aggregate level, and not at a specific company / stock level that constitute the CGES Index. These SaaS Metrics are provided purely for informational purpose and CSVP assumes no liability for accuracy, suitability, or completeness of the SaaS Metrics. The SaaS Metrics are created using publicly available third-party information and CSVP does not claim any ownership of the sourced data. CSVP is not responsible for the accuracy, suitability or completeness of the information originally disclosed by the owner of the information and any information provided herein. CSVP accepts no liability and offer no guarantee as to whether the information is up to date, correct or complete.

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