An Indian SaaS startup that got acquired for 10 times the funds it raised

India's SaaS startups seem to be on the radar of global firms; one success story is Gurgaon-based Mettl, which raised only Rs 300 million and was acquired for Rs 3 billion within a span of eight years

Earlier this month, Mettl, an Indian startup that offers SaaS (software as a service) platform for online assessment, quietly got sold to Mercer, a global HR consulting company that is a subsidiary of Marsh & McLennan Companies Inc. 

There was not much of noise around the deal —that is quite common in the early phase of India’s startup journey. It was a fairly profitable exit for the investors and promoters of the Gurgaon-based company. Mettl, which had raised just around Rs 300 million ($4.4 million), was acquired for Rs 3 billion within a span of eight years. 

Leaving aside valuations, what is not so well known is that it is the first exit in India in the SaaS space, which is starting to catch up the frenzy of entrepreneurs and investors. Although the success rate in India’s SaaS space has been limited when compared with the Silicon Valley, where almost every other startup is a SaaS or software product company, the early exits in this space are expected to encourage a lot of entrepreneurs to take a safer bet and get involved in value creation before starting something else.

“The story of Mettl is actually quite beautiful. It is not just first exit in India in the SaaS space, but it is also the story of a company that raised a very little capital and sold after 7-8 years for around Rs 3 billion,” says Naveen Tewari, co-founder & CEO of InMobi and also one of the earliest investors in Mettl. “It’s not billions of dollars of acquisitions but these kinds of stories that actually make the continuum of startups successful, and India needs many more such startups,” adds Tewari, also an active angel investor with the likes of Razorpay and NestAway in his portfolio.

In India, where business to consumer (B2C)-focused startup companies seem to be the flavour of the day, primarily for their huge appetite for funds and massive valuations, a handful of startups that are early movers into the SaaS space are starting to see decent success. Earlier this year, Chennai-based SaaS firm Freshworks (formerly Freshdesk) broke into the elite Unicorn Club, which was intil then dominated by consumer internet and e-commerce startups, with a valuation of around $1.3-1.4 billion.

While many see this as a welcome change and as an indicator of India’s growing SaaS space, industry watchers and investors say that there could be opportunities for more exits rather than getting big valuations in this area. Large global corporations have already been scouting for talent and technology in India and SaaS firms here are likely to become perfect targets as they look to boost their digital prowess. 

V Balakrishnan, former chief financial officer of software giant Infosys whose investment company Exfinity Venture Partners invests exclusively in B2B companies, says he doesn’t think too many SaaS companies will become unicorns. However, this is not to say investing in B2B or SaaS as a segment is not as lucrative for investors. Rather, these companies might be safer bets, considering they are not as hungry for funds as their consumer-facing counterparts.

“I don’t think you’ll see as many B2B unicorns because the sector has developed a much more robust M&A pipeline than the B2C sector. Many of these companies might not reach a billion-dollar scale on their own. But the fact remains that they have proven to be value creators for investors and are not as cash-hungry as these B2C players,” says Balakrishnan.

“Earlier, there was always interest from overseas customers for being only customers of Indian B2B firms. Now, they are seeing that B2B companies built out of India are hiring a lot more talented people. Their level of process maturity is better. Overseas acquirers are much more likely to respect and that means they are more than willing to pay for those,” says Sanjay Nath, co-founder and managing partner at Blume Ventures. “Today B2B firms are very strongly on the radar of MNCs.”

The beauty of the companies in the SaaS space is also that they generate enough cash to continue the business, with their markets predominantly outside of India. One such startup is Zoho Corporation, a boot-strapped company that has not yet felt the need of tapping external funding. 

“Consumer companies are going to be the breakouts, but in B2B and SaaS it’s what you get in what amount of time. In B2B, founders dilute less and get more money, and so do the investors. The absolute dollar value is never going to be $1 billion like a Swiggy or Zomato, but B2B is incredibly cash-efficient,” adds Nath.

Tewari of InMobi says that he is soon expecting to see a trend when entrepreneurs would look for faster exits to reinvest the fund and experience to start anew — something very common in a matured startup ecosystem in the US.