Is Generative AI a crossroad moment for India SaaS? At March Capital, we believe that the arrival of Generative AI (GenAI) is a unique opportunity for Indian founders to help create significant value and to build global enterprises from India. Thriving IT services emerged in India during the 1990’s, which led to global software giants setting up research and development (R&D) centers in India during the early 2000’s. The following decade, SaaS startups began to create significant value, proving a natural evolution to the current emergence of AI companies out of India. A recent report between SaaSBoomi, India’s largest community for SaaS founders, and its knowledge partner, McKinsey, on “India’s SaaS Revolution: Exploring global opportunities in a dynamic market” supports our thesis how transformative technology like GenAI has provided the SaaS sector an opportunity for unprecedented growth in India.
The road to GenAI in India
The early years of helping large Fortune 500 enterprises through IT services allowed talent from India not only develop vertical expertise but also understand the nuances around complex process workflows. Companies like Tata Consultancy Services (market cap of $152B) and Infosys (market cap of $71B) have been successful in large enterprises meet their automation needs. During the early 2000’s, large technology players such as Microsoft, Google, Cisco, SAP etc. established large R&D centers in India to capitalize on the high-quality engineering talent.
This foundation helped the early SaaS companies emerging out of India such as Zoho (est. valuation of $10B+), Freshworks (market cap of $6B+), Postman (valuation at $5B+), Innovaccer (valuation at $3B+) to think about customer needs & enabled rapid growth of SaaS companies from India. According to the “India’s SaaS Revolution” report, there has been a significant acceleration in the adoption of SaaS over the last two years with 80% of software expected to be delivered through this model by 2030. At this pace, the Indian SaaS ecosystem could also achieve $50-70B of revenue and $500B of enterprise value by 2030. SaaS companies in India can operate with lower sales/marketing investment, R&D intensity, and better payback periods compared to their global peers.
The McKinsey SaaSBoomi “India’s SaaS Revolution” report also addresses that 60+ high impact domains – horizontal, vertical and developer SaaS tools are emerging where AI is expected to drive up to 40% higher internal productivity globally. Indian SaaS companies stand poised to embrace this wave of GenAI by building world-class AI-powered products leveraging their domain and functional expertise that will help solve workflow and automation challenges for enterprises. This ambitious vision requires a collaborative effort from industry associations, government, investors, corporations and the broader ecosystem.
India has some inherent advantages to build on the emergence of GenAI. Below are some observations:
- There are 9 million software developers that act as a strong user base for AI devtool startups
- GenAI specific talent are starting companies from large India R&D offices of big tech such as Microsoft, Google, and NVIDIA
- Vertical and domain depth as upto 60% of global business processes and workflows are managed in India that have been built through years of IT Services followed by SaaS evolution in India
- A strong ecosystem and community around SaaS founders with established playbooks, mentorship from serial entrepreneurs and fail fast to scale approach is enabling the AI SaaS ecosystem to emerge faster.
- More than 20% improvement in Total cost of ownership across software, services & support by leveraging a strong DNA & talent pool for product, engineering & customer success. SaaS AI companies from India can scale with potentially upto 20% lower S&M investment, 30% lower R&D & 15% lower payback periods.
There are domains in GenAI where India is well positioned to capitalize on due to its systemic advantages across, talent and expertise as noted below:
- ChatGPT interfaces – Industry’s services can be accessed/distributed through single pane of glass conversational front-end UI/UX
- Automation – GenAI can enable reducing costs for delivering services & products e.g. Improving developer productivity, faster & better quality content generation
- Migration/switching – Data, technical migration, enablement, reduced learning cycles using GenAI can reduce migration time and/or switching cost
Many interesting companies are emerging out of India in the areas that we have mentioned above. For instance:
- In AI native domains, new use cases emerging such as:
- Conversational AI e.g. Uniphore that has one of the largest deployments of AI in the enterprise space with gen AI embedded in their products
- Marketing content automation. E.g. Peppertype.ai
- Intelligent document processing e.g. Nanonets
- Text to speech e.g. Murf.ai
- Sales co-pilots, e.g. Aspiro
- Legal assistants e.g. ContractKen
- Core workflow disruption where value proposition around ability to execute workflows faster, cheaper and with better experience is paramount, companies such as ai and Workhack are emerging.
- Developer tools/applications such as Nimblebox & Dhiwise use GenAI to serve users that are typically unserved by large IDE’s/platforms
We think that the surface is just being scratched with great opportunities yet to emerge in this rapidly evolving GenAI space, and we look forward to engaging with founders as they use this disruptive technology to build and scale companies globally.