Enterprise tech through Arali Lens - July 22
Segments & TAMs, VC investing approaches, Indian B2B marketplace action & more.
Writing this amidst the chaos of migrating our tech stack to Microsoft platforms, I am amazed at how the big daddy of tech has transformed itself into a cloud-first company and continues to scale rapidly, while at an astounding $200B ARR. Azure and LinkedIn are clearly on a tear.
Closer home, Intuit’s decision to pull Quickbooks from India has brought to light the scalability of a purely mid-market focused tech business in India. A cursory glance at all large mid-market focused tech/SaaS companies seems to indicate customer numbers in the range of 30,000 to 1 lakh. Anecdotally, the ACV seems to be in the <50K INR range for most of these solutions. Even at double that ACV (1L INR ($1,333)) and a 1L mid-market customer base, the TAM does not go beyond $133M. Is it then almost necessary for mid-market companies to look at overseas markets? This is worth a detailed analysis. More on this in the near future!
A shining example of an Indian company focusing on global SMEs and moving up to mid-market and beyond is Freshworks. While public markets have not been kind to it in the last 6 months, there is still a great deal to be learnt from their journey. Just before the listing (Aug 2021), these were their numbers:
38,700 SMBs, 8,300 mid-market, 1,300 enterprise - a distribution that any SMB focused company would be proud of!
75% of their customers, with ACV of less than $5K, contribute 16% of ARR.
2% of their customers, with ACV greater than $50K, contribute 34% of ARR.
Do read this slightly dated, but brilliant breakdown of their overall numbers. A very detailed analysis of similar companies, starting product-led growth for SMBs and moving upmarket makes for a very interesting read. As an investor, it shows how careful one needs to be while evaluating TAM.
From the VC world
In the ‘now’ normal, coverage from different publications portrays how the market meltdown has actually led to significant focus on SaaS. The one by Pitchbook based on Q2 data and another on Indian investments in SaaS tell similar stories. From our vantage point, it feels very true. As my partner Rajiv puts it: “SaaS is the new B2C.”
Meanwhile, Mark Suster wrote an insightful article on their guiding principles in 20 odd years of investing, especially in the crazy periods of 2020-2021. A couple of points here hit home for us:
It is easier to consistently generate multiples when you are a small fund.
In VC markets with significant dry powder, early rounds (series A and B) are not necessarily proof of better traction or success. In fact, in situations like these, you are better off investing at seed stage rather than later.
A timely reminder for us to focus on cash, and not get carried away by on-paper multiples.
Noteworthy Indian B2B action in July
An announcement that is personally very satisfying is the series A fundraise by Detect Technologies. Just prior to launching Arali, we had the opportunity to interact with the team. Back then, they were focused on digital pipeline monitoring and asset inspection in the Oil & Gas segment. Now, the footprint of their solutions has expanded significantly. This is a great example of an “not-purely-SaaS” vertically focused company built and scaling from India.
Some interesting funding news in agri-tech, with Vegrow and Waycool (both marketplaces) raising growth funding in the last two months. While the jury is still out on whether economies of scale will actually kick in and if there is room for margin expansion in these markets, these players, along with others like NinjaCart and DeHaat, are at least working to organise and digitise the markets. More power to them!
Arzooo, a full-stack marketplace targeted at consumer durable retailers, has been in the news lately with a series of funding announcements as well as new initiatives. The evolution of Arzooo’s offering represents a decent blueprint as to how B2B marketplaces can evolve in markets like India. Starting off with a managed B2B marketplace (serviced only by Arzooo), they have added logistics, credit, a pure-marketplace (serviced by third-party vendors using Arzooo logistics), and more recently, a model similar to Shopify for offline retailers.
Acquisition of SaaS biz Omuni by Shiprocket is another interesting development. Despite all the buzz, omni-channel fulfilment hasn’t taken off in a big way in India. Notwithstanding the historical regulatory & commercial constraints, the lack of underlying tech solutions in this area have been a dampener, so much so large retailers built it in-house and are now divesting from it. Personally, I still feel there is an opportunity to build this solution for mid-market and SME retail businesses.
Meanwhile, the results announcement from Reverie definitely grabbed eyeballs. For long, varied solutions to cater to multiple Indian languages have been built, but scaling the business has been onerous, probably because businesses realised that they could take recourse to English and Hindi, and the customer would manage. The emerging 100M-500M consumers from tier-3 and tier-4 cities are seemingly driving Reverie’s growth. Is this finally happening?
Arali Perspectives
Standing out from the crowd as a founder isn’t easy. We outline some key learnings on pitching for founders who intend to raise funds. Read here.
From Arali’s Portfolio
Robo-research startup Decodem.ai showcased its product at the Societe Generale Global Solution Centre #HackerVerse event this month.
WIZ was recently featured in Business Connect Magazine, among the ‘20 most promising startups to watch in 2022’.
Pathfnder participated in TTF (Travel & Tourism Fair), India’s largest travel show network, at Kolkata from 1-3rd July, 2022.
Unbox Robotics Co-founder & CEO, Pramod Ghadge attended a HAX-led panel discussion by TechCrunch on July 22, 2022. The session focused on “scaling robotics from pre-seed to unicorn.”
Signing off, folks!
If you are either building something in the enterprise tech space from India or associated with enterprise tech in general, we would love to hear from you.