Least amount of distress sales, shutdowns in SaaS: Upekkha report

Amidst a raging funding winter in the growth and late-stage activity of startups across the board, software-as-a-service (Saas)-focussed accelerator and early-stage fund Upekkha said the least amount of distress sales and companies shutting down has happened in the sector compared to the rest.

The “venture money destruction” was the least in SaaS and will continue to be least in 2024 as well, managing partner Thiyagarajan Maruthavanan told ET.

He was speaking, based on findings of Upekkha’s report released Thursday, on the state of SaaS businesses in India. As per the report, a total of 82 Indian SaaS startups managed to raise funding in 2023, versus 104 in 2022, 78 in 2021 and 49 in 2020.

Maruthavanan added that the SaaS markets are in no way rosy ahead, for investors and founders alike. “There are a bunch of companies who raised $10 million over the last 18 months and have not reached $1 million in revenue, the markets will get trickier for them.”

A lot of the consolidation and acquisitions will broadly be enabled by networks built out by past investors in 2024, with SaaS getting increasingly crowded and commoditised.

“Some of these Series A companies will quickly start having to prove a brand recall to show business moats in the spaces they set out to disrupt. Focusing on the user interface and seamlessly integrating new artificial intelligence workflows into these businesses will be crucial going ahead,” he said.

Maruthavanan cautioned that dealmaking activity, in the Series A stage in particular, in the Indian SaaS sector, which largely relies on selling of software subscriptions to businesses, had been plummeting and will likely to continue to do so.“If you look at years from 2013 to 2018, Series A deals were not aplenty. Activity in this stage in SaaS only started picking up in 2022, there were 7 such deals in 2021 and 9 in 2022 and 5 so far in 2023,” he said, adding that there were lower end of the single-digit deals in the Series D and above category.

Series A and upwards will go through a slower funding funnel and more scrutiny with investors looking at business metrics such as product-market-fit and establishing a channel of sales distribution more carefully than before, he said.

“The phase where investors wanted to enter into SaaS businesses simply driven by the anxiety of not wanting to miss out is over,” he added.

Upekkha, founded in 2017, offers $125,000 pre-seed funding to entrepreneurs in the space. Currently, Upekkha’s portfolio has over 165 startups and over 300 founders.

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