India’s digital ecosystem is set to undergo an unprecedented transformation. With active internet users poised to exceed 900 million by 2025, the nation is a thriving hub for businesses of all scales and sectors. This surge in digital-first consumers has not only bolstered giants like Zomato, Amazon, and Paytm but also paved the way for the flourishing SaaS (Software as a Service) sector.
According to the Inc42 report on India’s SaaS Startup Ecosystem, the country’s SaaS market is expected to grow from $14 billion to over $70 billion by 2030, driven by a compound annual growth rate (CAGR) of 31%. This monumental growth is supported by two primary pillars: horizontal SaaS and vertical SaaS.
The Reign of Horizontal SaaS
Horizontal SaaS has long been the face of India’s enterprise tech evolution. Companies like Zoho and Freshworks have created industry-agnostic solutions, enabling businesses across sectors to streamline processes and enhance productivity. These platforms cater to diverse needs, from CRM systems to project management tools like Asana and Slack, making them indispensable to organizations of all sizes.
The funding patterns reflect this dominance. Of the $20 billion raised by SaaS startups between 2014 and mid-2024, over 72% went to horizontal SaaS players. Furthermore, 20 of India’s 27 SaaS unicorns, including BrowserStack and Capillary Technologies, belong to this category. However, while horizontal SaaS maintains a stronghold, a new wave is emerging—vertical SaaS.
The Rise of Vertical SaaS
Unlike horizontal SaaS, vertical SaaS targets niche industries, offering solutions tailored to specific business needs. Startups like Chargebee, which focuses on subscription revenue management, and Perfios, catering to BFSI (Banking, Financial Services, and Insurance), are pioneering this shift.
Although vertical SaaS has historically attracted less funding (27% of total capital), its growth trajectory is noteworthy. Between 2018 and 2023, funding for vertical SaaS grew at an 18% CAGR, outpacing the 10% growth of horizontal SaaS. With revenue projections soaring from $5 billion to $26 billion by 2030, the vertical SaaS segment is carving its own path to success.
AI: A Game-Changer for SaaS
Artificial intelligence (AI) and generative AI (GenAI) are redefining the SaaS landscape. These technologies enable everything from automated workflows and advanced predictive analytics to enhanced cybersecurity and LLM-powered chatbots. Vertical SaaS companies, in particular, are leveraging AI to develop specialized tools that deliver precise, data-driven insights for their respective industries.
The integration of AI has also spurred innovation in sales models, moving from direct selling to assisted buying. This shift allows SaaS companies to reach broader audiences, create personalized experiences, and drive growth more effectively.
With 85% of Indian SaaS startups already adopting AI in their offerings, the potential for disruption is immense. Startups like Pepsales are leading this charge, using AI to create customizable, cloud-based product demos. However, the ethical use of AI remains a pressing concern, emphasizing the need for robust checks to ensure transparency and authenticity.
Funding Challenges and Opportunities
The Indian SaaS sector saw record-breaking investments in 2021 and 2022, raising over $5 billion annually. However, the funding winter of 2023 caused a significant slowdown, with investments dropping by 71%. Despite these challenges, investor interest remains strong in AI-driven SaaS solutions, especially those targeting niche verticals like climate tech and financial services.
According to Gemba Capital, startups with clear go-to-market strategies, high average contract values (ACVs), and scalable AI-driven solutions are more likely to attract funding in this evolving landscape.
Building for the World, from India
India’s SaaS ecosystem boasts over 2,200 funded startups, but nearly 38% of these operate from overseas headquarters. Even among India’s 27 SaaS unicorns, 63% are based abroad. However, this trend is gradually shifting as the domestic market matures and becomes more conducive to global-scale operations.
Cities like Bengaluru, Mumbai, and Delhi NCR are leading this transformation. Bengaluru, in particular, has emerged as a SaaS powerhouse, securing $8.6 billion across 890 deals in the last decade.
The Road Ahead
As India’s SaaS sector continues to evolve, the focus is clearly shifting from horizontal to vertical SaaS, propelled by AI and its transformative potential. With its vast talent pool, growing digital adoption, and increasing investor interest, India is poised not only to create SaaS solutions for the world but also to scale them globally from its own soil.
The next few years will be crucial for startups to capitalize on this momentum, innovate with AI, and cater to the nuanced needs of niche industries. For businesses ready to ride this wave, the opportunities are boundless.
