HiTech IT and Tech
Hiring sentiment in SaaS
14 Nov 2022
Till Q4 CY2021, the enthusiasm about the growth and rising global investments in Indian SaaS industry was effusive.
Investments in the industry increased by three to five times and accounted for close to 10% in overall private equity and venture capital deal value in India. Indian SaaS companies were growing fast, (about 9% CAGR over the last 3 years) and reaching key milestones: over 30 companies exceeding ARR of USD 20 Mn out of which ~20% are estimated to have an ARR of US$ 100M. 90% of this revenue was international. Total investments of ~US$ 5 B, occurred across different stages of growth in 2021. This increased the number of unicorns to 19 and “soonicorns” to above 200. This growth momentum was expected to continue in short to midterm.
The SaaS industry was touted as being insulated to the economic woes brought on by the COVID-19 pandemic. The recession in the west and enterprise acceptance of virtual work were tailwinds to this trend, as more enterprises leveraged outsourcing and more economically viable software options. The Indian SaaS industry was projected to generate revenue of US$ 50B to US$ 70B (from ~US$ 5 B in 2021) and win ~6% of the global SaaS market by 2030 (from ~1% in 2021), creating as much as US$ 1T in market capitalization. This meant that the SaaS companies would employ over 350,000 by 2030 from the current industry employment of ~60,000. The trends of growth rate and investment influx were expected to continue for almost next decade.
Web 3.0 enabled and vertical specific SaaS see a sustained early-stage investment momentum which is expected to drive the hiring in core-engineering and product management roles
However, owing to the slowed market growth and arrival of a “funding winter”, Q1 CY2022 was lackadaisical. The demand for digital only businesses decreased as consumers preferred “phygital” over digital. Investments by private equity and venture capital firms in Indian SaaS companies declined by 27% in April 2022 to US$ 5.5B across 117 deals, according to a recent report by IVCA. In May 2022, the funding was estimated at US$ 1.6B and in June 2022, it was slightly better at US$ 2.65B. Large private equity and venture capitalist firms advised their target companies to conserve cash and stop the cash burn. The number of deals and growth rounds reduced significantly. Consequently, firms laid off several employees, especially in the edtech sector.
However, the future is not all gloom and doom. Companies in SaaS segments such as fintech, media-tech, SaaS products, ecommerce, data services and life sciences businesses employ about 40,000 people increased their hiring by about 20% Y-o-Y in Q1CY2022. These are well funded segments with ~50% receiving US$ 200-500M in funding so far since their inception, while the rest have received funding in the range of US$ 50-200M. These companies include unicorns like Zeta, Glance, Zenoti and BlackBuck, among others and are expected to grow two-fold in terms of hiring in the next 2-3 years. Other prominent SaaS firms such as Actyv.ai, Supplynote also have similar aggressive plans in the near future. About 40% of these companies are also looking for talent outside India to support their growth plans.
The largest demand has been for core engineering and product roles. SaaS companies servicing BFSI, logistics, fintech, ecommerce space have taken biggest share of new hires and will continue to do so. As an example, on the back of its $153 Mn Series C funding, Leadsquared is looking to double its workforce from currently 1200 in a year and half.
There is likely to be a 20-25% Y-o-Y increase in the hiring of mid-to-senior talent by well-funded startups in the ongoing quarter, according to CIEL HR.
As per report by Stellaris Venture Partners an early-stage venture capital firm, and International Finance Corporation (IFC), a member of the World Bank Group, AI-SaaS firms alone, have the potential to add upto 900,000 direct and 3.6 M indirect jobs by 2030. Given the advent of Web 3.0 and metaverse, technical skills such as blockchain, data engineering, UI/UX design, AR/VR, gaming and cybersecurity are expected to be the most in demand.
Road ahead and measures to enhance talent employability: focus on new-age tech but don’t forget interpersonal skills
However, to sustain the momentum, companies and current and potential employees have to enhance the talent employability and make them market ready. According to NASSCOM, with 35% of STEM graduates employable, the demand-supply gap will increase 3.5 times by 2026. According to the SaaSBOOMi report, 77% of SaaS leaders in India say their biggest challenge is ramping up critical talent. As an example, product managers may have strong engineering and technical skills but lack the required business orientation. Indian companies need to invest more in the product management, R&D, sales, marketing, and services. To stand out in the global competition, Indian firms must make their talent more competent and increase the talent pool by 3 to 6 times.
To bridge this gap, Indian SaaS companies are expected to implement mentorship initiatives, internship program and transparent management practices. Partnerships with educational institutes is also key. Several leading colleges train their students on new-age tech such as AI, ML, Blockchain, cloud and analytics. They are also collaborating with ed-tech firms to ensure that the delivery of such courses is interactive, personalized and practical. The focus on enhancing life skills, interpersonal skills and business orientation however is lacking. This development is most effectively done through strong mentors. A senior product manager, as an example, should focus on making his team value their contribution and in the process become more productive. Other emerging approach is conducting bootcamps that give the new employees a real-world experience and encourage them to adapt to be successful. To facilitate this, organizational culture is paramount. Companies now should focus on increasing experimentation and encouraging inclusive leadership.
Conclusion: To continue to address the global SaaS opportunity, companies need to cultivate Indian tech talent to become world class, by enabling their leaders to devote more time on mentorship and connecting with their employees.
To conclude, Indian SaaS companies have been through a relatively rough year, especially for the ones belonging to Edtech, D2C and ecommerce. Owing to which, there were several instances of layoffs in the SaaS world in H1 2022. However, on the back of sustained domestic and international demand for SaaS, the next 12 months look promising. The demand for tech and product skills for Web 3.0, metaverse, and AI/ML is only expected to increase. In order to maximize the opportunity, Indian firms and talent should focus on making Indian talent market ready and employable.
This can be done internally by focusing on establishing a digital training calendar and facilitating and encouraging mentorship, and externally by collaborating with leading educational institutions, talent coaches and innovative corporate training firms.
Chirag Rawat, Partner, HiTech IT, and Tech practice, Praxis Global Alliance