How are Indian B2B SaaS companies balancing high growth with capital efficiency

Indian B2B SaaS companies’ ecosystem is highly capital efficient and way ahead of the global SaaS benchmarks.

Capital efficiency has always been a key metric to evaluate growth stage start-ups, but abundant capital in the recent past and being growth focused led many start-ups to acquire customers at all costs. However, this is changing in the current macro environment as major economies are expected to go into recession in 2023 (as per IMF) and geo-political tensions are escalating. In such an environment, Indian B2B SaaS companies have shown high levels of capital efficiency, which bodes well for sustainable growth. 

Based on financial and operational prudence, most Indian B2B SaaS companies maintain a burn multiple under 1.5x, which is well below the global average of 2x to 3x. 8 out of 10 Indian B2B SaaS companies claimed an improvement or no change in key performance metrics like net dollar retention rate (NDRR), customer acquisition cost (CAC), customer lifetime value (CLTV) in 2022. This contributes to their overall bullish outlook, finds the EY-Upekkha report, ‘Bellwethers of Indian SaaS: High capital efficiency underscores Indian B2B SaaS growth’, which draws insights from more than 140 survey respondents and over 30 in-depth interviews.

Maintaining capital efficiency – at the core of the growth strategy of Indian B2B SaaS 

Indian B2B SaaS companies have an inherent advantage, driven by lower labor cost and talent that is trained on remote customer engagement, inside sales and customer support, vis-à-vis global counterparts that aid in higher capital efficiency leverage. They have clearly displayed ingenuity in balancing aggressive growth with capital prudence. This, put together with a rapidly growing and maturing Indian B2B SaaS ecosystem, makes the segment extremely lucrative because of their potential to generate long-term value. Potential areas that can further propel growth and capitalize on the opportunity, include focusing on global markets, building depth within sectors and product innovation while maintaining financial discipline. In the near term, organizations need to address challenges related to optimizing sales closure cycle by streamlining sales operations, understanding client-end integration and mitigate skill-gap requirements.

Four growth trends among Indian B2B SaaS companies

The majority of the Indian B2B SaaS companies fall under four types of personas, but a unique feature is that while one out of three is a trailblazer with either an ultra or a hyper-growth company, it still displays a low burn multiple. 

Trailblazers adopt product innovation strategies to win niche market opportunities and drive capital efficient growth. Dashers invest in sales leadership and build partner-led expansion strategies to scale enterprise accounts and optimize their sales and marketing operations. 

Hiring and retention continue to be an issue, but CXOs are adopting reskilling and training strategies to mitigate the talent shortage risk. The other challenge is increasing importance of alternative funding instruments such as convertible notes against a backdrop of lower access to equity funding due to rising inflation rates.

In the near term, organizations need to address challenges related to optimizing sales closure cycle by streamlining sales operations, understanding client-end integration and mitigate skill-gap requirements. India is poised to become the next SaaS capital and B2B segment has the potential to be the flag bearer, driving long growth and value.