Meet the new $100-million club in making, courtesy SaaS providers

Girish Mathrubootham exudes confidence. He has every reason to. The financial year 2016-17 has been good for the 42-year-old chief executive of Freshdesk. Not only did he raise $55 million in November in a deal that valued the six-year-old venture at $700 million, he is betting that the upcoming fiscal year will be even better.

“Freshdesk will probably be the first company to touch, or even cross, $100 million (in revenue),” Mathrubootham said. That would possibly make the San Francisco- and Chennai-based company the first Indian software-as-a-service (SaaS) company to cross that milestone.

“$100 million in revenue is not the destination. It’s just a small milestone. Why stop there?” the CEO asks. While Mathrubootham has declined to disclose Freshdesk’s revenue, industry analysts estimate its topline to be comfortably north of $70 million from providing cloud-based customer engagement software.

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Software-as-a-service as an industry gained global momentum in early 2000 for its ability to be centrally hosted on remote server. Unlike traditional on-premise software that needs to be installed on individual systems, SaaS works on a software distribution model where third-party providers host applications that are made available to customers over the internet., the US-based customer engagement software provider, pioneered the global SaaS movement when it listed  for an initial public offering within 5 years of being founded. It created disruption among legacy companies including Microsoft and SAP. Around the same time in India, Chennai-based Zoho, a SaaS service provider, started expanding its customer base in the United States while most of its sales and development team operated from Chennai.

Zoho was among the earliest Indian SaaS startups to venture beyond the domestic markets, also providing the initial learning ground for SaaS entrepreneurs such as Mathrubootham. Mathurbootham’s success through Freshdesk, in turn, contributed to a larger ecosystem, making the deskselling and marketing model popular among Indian enterprise companies. India is now home to more than 750 SaaS startups.

“Companies like Freshdesk have been able to offer competitive worldclass products at better prices when compared to their global competitor Zendesk… If everything goes right, most of these companies will reach their $100-million mark soon, depending on which market they are in,” said Avinash Raghava, founder of software product think-tank iSpirt Foundation. The comments are a corollary to a report published by Google and marquee venture capital firm Accel Partners in March last year, which stated that Indian SaaS companies could potentially corner 8% of the global smalland-medium-business market for SaaS products by 2025. The expectation is that the next 12 months will see four or five of these companies achieve $50 million-$100 million in sales, which, in turn, will set the ball rolling for others in the pipeline.

“From the product and technology perspective, things are sorted for these companies. Their existing global client list is a testimony for that,” Raghava said. “Also, in terms of scale, Indian companies don’t face many challenges once they get the business model right.” Pricing will no longer be the only competitive advantage these companies offer to their global clientele. While the cost advantage continues to be an attractive selling point, SaaS companies are equally focusing on geographical expansion and broadening their array of products to boost top-lines.

“Products have to be more an omnichannel suite. For instance, we do (customer relationship management), ecommerce, and a bunch of stuff, all in one place,” said Aneesh Reddy, CEO of Capillary Technologies. Headquartered in Singapore and backed by the likes of Warburg Pincus, Sequoia Capital and Norwest Venture Partners, the company helps consumer brands increase customer reach, engagement, sales and loyalty.

Reddy did not disclose Capillary’s latest revenue numbers but said the company crossed $20 million in revenue four months ago. “I am reasonably sure there will be 3-4 companies (that will) cross the $50-million revenue mark over the next 12-18 months. There is a definite trend towards that. I hope we will be one of the early ones,” he said.

“We now have a list of 200 companies across India, the Middle East and Southeast Asia that can each pay us, at scale, $1 million-$2 million on an average. We have set up separate sales teams for them. We already have 50 out of those 200 companies and are going deeper into them,” Reddy said.

He is very clear about the company’s expansion strategy. The United States, considered the most lucrative market for enterprise-tech, does not hold the same attraction for Capillary. “We are investing big time into Saudi Arabia, Indonesia and China, which are all new markets for us, and are all less than a year old,” the IIT-Kharagpur alum said.

“The rest-of-the-world market is as big as the US market. If you are looking to hit those revenue numbers, these companies better have expansion plans mapped out already,” said Mohan Kumar, executive director, Norwest Venture Partners India.

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The firm, along with Accel Partners and Nexus Venture Partners, has been among the busiest in backing domestic enterprise-tech companies. Even for Freshdesk, which has carved a niche for itself in the United States, the quantum of business coming from the America and Europe is split almost evenly.

“You can’t control from where prospective clients come from. There is no incentive for us to say no to a prospective client, from say, Poland or the Netherlands. That’s the reason it’s actually healthy for our business to have a diverse geographical spread, because it eliminates risks that can hurt revenue,” Mathrubootham said.

An anticipated increase in global spending on information technology over the course of this year will be a big driver for SaaS companies, even after factoring in changes in political climate such as Brexit and churns in global markets. Global IT spending in 2017 is expected to rise 2.7% to $3.5 trillion, according to technology research firm Gartner. Of this, spending on enterprise-tech is projected to be $355 billion, up 6.6% from 2016, and increase to $380 billion next year.

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