Tiger Global Management is pumping money into software as-a-service (SaaS) startups in India at a time the sector is grinding through a funding slowdown.
The American hedge fund, one of the most prolific startup investors in India, has made a contrarian bet by scooping up stakes in several SaaS startups that provide software services to enterprises and SMEs on a subscription basis.
According to Venture Intelligence data, investors deployed $61 million in 17 SaaS startups in the March quarter, a six-quarter low in both value and volume. The deal value is a sharp 75% lower than the record $251 million clocked in the September quarter.
However, Tiger doubled down on business-to-business (B2B) and software firms in this period, making four SaaS deals totalling about $90 million in the past six months. These include expense management software Fyle, facilities management software startup Facilio, connected workforce platform Innovapptive, mobile marketing startup CleverTap and salon and spa software provider Zenoti.
Mint reported on 29 April that Tiger is looking to make as many as five software investments in the coming weeks from its $3.75 billion fund— Tiger Global Private Investment Partners XI—which intends to focus on consumer internet, cloud computing, industry software and direct-to-consumer companies in India, China and the US.
According to investors, the slowdown in the space is a global phenomenon.
“Early-stage SaaS and B2B deals have flattened somewhat in terms of capital allocation, while late-stage deal allocations have gone up. This is a global phenomenon that we are seeing in India as well. As the winning playbook in an emerging category gets written, everyone—founders and investors—get smarter and capital allocation becomes more efficient especially in winner-take-all categories," said Hemant Mohapatra, partner at Lightspeed India.
Niren Shah, managing director, Norwest Venture Partners India, added that Indian SaaS startups have gone through an evolution in their business models in recent years and are now emerging as attractive companies for investors. Norwest’s portfolio company Zenoti raised $50 million from Tiger earlier this month.
“Indian SaaS companies initially commenced serving the Indian market but realised that the Indian market was growing slowly. Many such companies pivoted to serve global customers and took a few years to perfect that product-market fit. We are now seeing these companies in the Norwest portfolio coming of age in terms of scale, resulting in larger rounds of late stage funding," Shah said.
The focus on SaaS startups in India mirrors Tiger Global’s global approach, with investments in companies such as China’s Udesk, an enterprise platform for intelligent customer service, and US-based Green Bits, a company that makes point-of-sale software for cannabis retailers.
Industry experts point out that there are similarities between Tiger’s old and new strategy. When it first backed Flipkart and Ola, now consumer internet giants in India, it also backed nearly 50 other companies, many which did not scale as well. But its outsized returns from Flipkart, where it made $3 billion after investing over a billion, dwarfed its failures.
“Tiger is not betting on SaaS companies. It is betting on the market. If even one of these companies manages to take off and give a good exit, it will more than make up for the others," said an investor in one of Tiger’s recent portfolio companies, on the condition of anonymity.
