Management consulting firm Bain & Company released a report titled ‘India SaaS Report 2022 - Remaining steady through turbulence’ on Tuesday, in which it revealed that Indian Software as a Service (SaaS) companies are poised to command eight percent of the global SaaS market, generating $35 billion in annual recurring revenue (ARR) by 2027, growing at 20-25 percent per annum.

The report encapsulates the growing momentum of the SaaS industry, despite prevailing market headwinds, driven by proliferation of new SaaS companies with proven growth models and supported by investors who are allocating increased capital to SaaS companies, across stages.

Indian SaaS companies’ future trajectory remains promising as their total annual recurring revenue, of $12-13 billion in 2022 is up four times over the past five years. Of the 1,600 Indian SaaS companies that have now been funded over the past five years, around 14 exceed $100 million in ARR (vs around 1–2 five years ago) and are reaching this growth milestone as quickly as their US counterparts.

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2022 has been another record year for Indian SaaS investments, reaching $5.1 billion up about 20 percent from 2021. This is being driven by increased interest in earlier-stage deals; with significantly more seed deals that have doubled in size over the past three years and a doubling of Series A investments compared to 2021. Later-stage deals have seen a slight slowdown, as some of the largest Indian SaaS companies with healthy cash positions choose not to raise in prevailing market conditions. While 2021’s funding momentum carried over into a record first quarter, there has been a subsequent decline in investment across quarters as global investor sentiment has softened.

Indian investors continue to back a range of companies across horizontal business, horizontal infrastructure, and vertical SaaS. Horizontal business attracts the most capital, nearly 70 percent, while horizonal infrastructure saw around 15 perent of 2022 investments, with numerous global leaders emerging out of India in DevTools in particular given India’s extensive developer base (about 10 percent of global total) and rapid, product-led growth.

In an environment of softening investor sentiment, SaaS has emerged as a comparative bulwark for the India VC market, given proven revenue growth, attractive operating economics and ample exit opportunities (doubling to about 40 exits in 2022). Indian SaaS venture capital (VC) investment were up by 10 percent in the first three quarters of 2022 compared to 2021 — while overall VC investments were down.

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The outlook for Indian SaaS investment remains broadly positive over the next 12 months, with close to 90 percent of Indian SaaS investors expecting to increase or maintain their capital allocation to SaaS. Investors count DevTools, CRM, and logistics tech among the most exciting sub-sectors, while portfolio company priorities are product market fit and go-to-market (GTM) for early-stage companies, and talent management/acquisition and overseas GTM for late-stage companies.

Buyer sentiment in SaaS will remain broadly positive going forward as well, with approximately 65 percent of enterprise software decision makers expecting to increase their 2023 software budgets. While software buyer sentiment has softened in the second half of 2022, Indian SaaS companies continue to bank upon innovative strategies and are present in multiple categories that are expected to see increased spending.

Long-term, secular tailwinds will remain a catalyst for growth for Indian SaaS — who are emerging not only as Indian, but global champions.

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