Subscribe to our newsletter to read this first thing on Friday morning. This is the preview of what you will receive in your inbox.
Earlier this week, Freshworks became the first Indian-origin SaaS company to list in the US. Just as it made a stellar debut on Nasdaq with a billion-dollar IPO, congratulatory messages poured in on social media from India’s top VCs and founders, while the local startup community rejoiced in the milestone achieved by the company that was started by Girish Mathrubootham and Shan Krishnasamy, who huddled in a small-house-turned-office in suburban Chennai 11 years ago.
After receiving backing from a lineup of top-notch global and local investors, including Accel, Tiger Global, and Sequoia, as it kick-started its operation, it moved its headquarters to Silicon Valley to move closer to its customers. Freshworks is now a global business with more than 50,000 customers and annual revenue in excess of USD 300 million.
“I feel like an Indian athlete who has won a gold medal at the Olympics,” said Mathrubootham, co-founder and CEO of the company, as he rang the opening bell on Nasdaq. He was accompanied by his wife, two sons, and a pet dog.
With Freshworks setting a clear benchmark, Indian SaaS entrepreneurs are inspired to become more ambitious and aim even higher. In this week’s big read, we looked at all the factors that turned the Indian SaaS companies into a darling of investors.
The Big Read
Indian SaaS startups steal thunder of consumer-oriented peers as pandemic accelerates digitization
What Happened
Indian SaaS startups have raised about USD 4.3 billion in funding from global investors in the last 20 months—a significant hike from the USD 2.9 billion they received in 2018 and 2019 and a huge jump from the 0.9 billion dollars they managed to get in the previous two years. At the moment, it has become clear that major VCs are writing them bigger and more frequent checks even at sky-high valuations.
API development platform Postman is one of the many Indian SaaS upstarts that has benefited from the current SaaS investment frenzy in the country. It raised a total of almost USD 400 million from two rounds in 2020 and 2021. In comparison, the company only managed to amass USD 58 million in three rounds across the first five years since its inception in 2014. From a moderate 350 million US dollar valuation in 2019, it has rapidly risen to become the country’s most valued SaaS startup at USD 5.6 billion.
Many other SaaS startups have also won affection from investors. Online sales management software company MindTickle raised two USD 100 million rounds—in November 2020 and August 2021—just nine months apart. BrowserStack, a web and mobile app testing service, received USD 200 million in funding earlier in June. Subscription billing platform Chargebee raised USD 125 million in April, barely six months after its last USD 55 million round.
It is hardly a surprise that seven out of 11 B2B SaaS unicorns have entered the elite billion-dollar-plus club since the beginning of 2020. The euphoria around local SaaS startup notched up this week with Freshworks getting listed on Nasdaq. But Freshworks’ success isn’t the only factor that’s driving the country’s SaaS enthusiasm. A major shift had begun when the pandemic struck in early 2020.
What Does It Mean
“At the beginning of COVID-19, it was not very certain how SaaS companies would get impacted because the immediate beneficiaries were consumer-focused segments like edtech, healthtech due to the lockdowns,” said Arun Natarajan, founder of Venture Intelligence, a Bengaluru-based research firm tracking startup investments. “But gradually, the whole digitization in India and overseas drove adoption for enterprise solutions, and hence the demand for these guys.”
True enough, the homegrown SaaS companies, which were already enjoying steady organic growth before the pandemic, have witnessed the demand growing at a breakneck speed.
This change in the business environment led to more investments in performing SaaS firms.“It’s like fuel into the fire. Earlier, these companies might have been getting, say, ten queries a week. They are now getting 1,000 queries a week,” said Pratip Mazumdar, co-founder and partner of early-stage VC Inflexor Ventures. “SaaS companies have realized they are in a sweet spot where they have the right product-market fit, massive opportunity due to digitization, and capital to go all out.”
Most of the SaaS companies are utilizing fresh funding to cater to ballooned incoming demand as well as to go after bigger and better-paying clients, something they wouldn’t have done in the near term if there was no crisis.
“With the higher capital raise, the SaaS companies will have the potential to capture a disproportionately larger market share available today,” said Pratip Mazumdar.
Moreover, with money sitting in the banks and local market buoyancy, many local SaaS startups are looking for a bigger playing field beyond India and the US, which is usually the primary market where Indian SaaS startups expand to. Chargebee, for instance, is in the process of setting up a base to tap the European market.
The Weekly Buzz
1. Freshworks became the first Indian SaaS company to list shares in the US. The company— founded in Chennai in 2010 and shifted to Silicon Valley to be closer to its customers—raised over USD 1.03 billion in its initial public offering (IPO) by selling 28.5 million shares at USD 36 apiece. In a stellar debut on Nasdaq on September 22, the San Mateo-headquartered firm’s shares opened at USD 43.50 apiece, up almost 21% against the IPO price. On its first trading day, Freshworks’ share price surged up to 33% to about USD 48 on the back of high investor demand, while its market capitalization ballooned to USD 13 billion.
2. Tiger Global-backed fantasy gaming unicorn Dream11 has started churning profits—becoming one of the very few consumer internet startups and one of the first gaming platforms in the country to turn profitable. The Mumbai-based startup made a profit of USD 24.4 million (INR 1.8 billion) in the financial year ended March 31, 2020, a big jump from the USD 11.7 million (INR 870 million) loss it saw a year earlier. Its revenues grew over 2.5x to INR 20.70 billion (USD 280 million) in FY 20 from INR 7.75 billion (USD 105 million) in FY 19, as per the latest regulatory documents. Dream11 attributed its rapid growth to innovative marketing strategies and new product launches.
3. Indian used vehicle market is heating up with bigger funding rounds, IPOs. While marquee global investors pour hundreds of millions of dollars into the rapidly growing segment, incumbents have begun eying public markets. Gurugram-based Cars24, which runs a platform for selling and buying used motorbikes and cars, recently raised USD 450 million in a Series F from SoftBank, Falcon Edge, and Tencent. Earlier in July, its rival Spinny closed a USD 108 Series D round led by Tiger Global. That same month, another competitor, Droom, received the first tranche of USD 200 million pre-IPO funding round at a valuation of USD 1.2 billion. The automobile platform is reportedly looking to file draft papers for a USD 135 million IPO with Indian regulators, following the August public listing of CarTrade, an online marketplace for new and used vehicles.
4. Indian edtech decacorn Byju’s bought US-based coding startup Tynker to strengthen presence overseas. The development came barely two months after the edtech giant acquired California-based reading platform Epic in a USD 500 million cash-and-stock deal. The two companies have “entered into a definitive agreement” which will further accelerate Byju’s market expansion plans in the US. Industry sources put the deal size around USD 150–200 million. Founded by Krishna Vedati, Srinivas Mandyam, and Kelvin Chong in 2013, Tynker has been used by over 60 million kids and 100,000 schools across 150 countries. This is Byju’s third buy in the US overall, and the ninth acquisition this year.
Q&A Of The Week
6 thoughts on India’s Gen Z from 2am VC
Hershel Mehta is a certified public accountant and two-time entrepreneur who heads US investments for his Mumbai-based family office, Mehta Ventures. In late 2019, he invited his friend Brendan Rogers, co-founder of SoftBank-backed American petcare startup Wag Labs, to India to attend a startup demo day organized by 100X.VC, a seed-stage investment firm founded by his cousin and serial investor, Sanjay Mehta.
After spending three weeks with young founders, the duo realized that India’s massive young population is “incredibly hungry to grow and educated,” with immense tech talent to build products. At the same time, it is “adopting technology at a very high rate.”
This led them to set up an India-focused, Gen Z-centric micro fund, 2am VC. They chose the name because they believe most action in early-stage startups happens late at night.
By the end of 2020, Hershel and Brendan raised USD 10 million for their fund. Since then, they have made 15 seed-stage investments and by next year, they plan to back almost 60 startups across themes relevant to Gen Z—e-commerce, fintech, wellness, mental health and fitness, crypto, and NFT.
We spoke to the two Los Angeles-based 2am VC co-founders to know more about why they are betting on India’s Gen Z and the trends they are excited about.
Top Deals This Week
What We Are Reading
How are Startups Valued: A Personal Account
In this article, Karan Bajaj, founder of coding learning platform WhiteHat Jr, which was acquired by Byju’s in mid-2020 for USD 300 million, talks about how he turned WhiteHat into a USD 450 million firm in about one-and-a-half years. Bajaj, who left the edtech decacorn earlier in August, explains the role, the current business and future vision play in the valuation game.
The Spoiler
Tune in next week to find out how climate tech investing is gaining momentum in India.