Indian B2B SaaS companies are 2x more capital efficient than global peers: EY report

• The Indian B2B SaaS industry continues to have a bullish outlook for 2023 despite global headwinds.
  
• Four out of 10 Indian B2B SaaS CXOs are targeting over 100% ARR growth.
  
• The majority of such companies are from AI, HCM, Fintech and CRM/CDP SaaS segments.

Unmoved by recessionary trends of the past year, the Indian B2B SaaS industry continues to have a bullish outlook for 2023, says a report by Ernst & Young in partnership with Upekkha Value SaaS Accelerator.

It states that Indian SaaS growth is highly capital-efficient by default, across stages. Eight out of 10 Indian SaaS companies have a burn multiple of under 1.5x. Globally, a burn multiple of less than 2-3x is a good state for growth stage — companies with $1 million to $100 million Annual Recurring Revenue (ARR).

“Indian B2B SaaS is about 2x capital efficient compared to its global counterparts. This places them well, when the capital ask shifts from ‘growth at all costs’ to ‘profitable growth’,” says Kamalanand Nithianandan, partner, Business Consulting, EY India.

The growth outlook is balanced by financial and operational prudence, reflecting strong focus on building and scaling capital efficient businesses, says the report titled ‘Bellwethers of Indian SaaS’.

Targeting ultra & hyper growth

Insights from the survey reveal that four out of 10 Indian B2B SaaS CXOs are targeting over 100% ARR growth (ultra-growth). A majority, eight out of 10 CXOs, are targeting above 50% ARR growth (hyper-growth) in 2023, as per the survey conducted by EY India and Upekkha.

The majority of companies tagreting ultra-growth are from AI, HCM (human capital management) fintech, customer resource management (CRM) and customer data platform (CDP) segments.

The funding scenario for Indian SaaS companies is also expected to remain bullish. The report highlights that with expected economic recovery in the second half of 2023 and availability of dry powder within the SaaS focused Indian VC/PE ecosystem, funding activity is expected to gain traction.

“This presents an opportunity for Indian SaaS companies with demonstrated profitability to raise capital at favourable terms and double down on growth,” the report says.

Alternative funding instruments, such as convertible notes, were emphasized against the backdrop of access to equity funding due to rising inflation rates.

According to the report, 60% of company CXOs reported product innovation, pricing changes and partner-led expansion as their top strategic priorities. Top challenge inhibiting growth was ‘delay in customer closure cycle’ for 51% CXOs, whereas sales inefficiency came next for over 41% CXOs.

Hiring and retention continue to be a key challenge, but CXOs also emphasize on adopting reskilling and training strategies to mitigate the talent shortage risk.

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