Freshworks IPO: What’s next for Indian SaaS

Freshworks’ growth from an office in a 700-square-foot warehouse to a $10 billion valuation in a decade shows the world’s appetite for Indian SaaS expertise.

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Freshworks became the first Indian SaaS company to list on Nasdaq on 22 September 2021. Its initial public offering of 28,500,000 shares at $34 per share raised over $1 billion, scaling its market valuation to $10 billion.

The influx of funding will help it grow, and puts the spotlight on other Indian software developers thinking of listing. “As more investments start pouring in, this will provide an impetus to Indian SaaS companies to focus more on product innovation which resolves pertinent customer challenges,” said Shweta Baidya, senior research for enterprise software and IT services at IDC India.

girish mathrubootham 1x1 Slava Blazer Photography/Freshworks

Girish Mathrubootham, CEO of Freshworks

CEO Girish Mathrubootham and CTO Shanmugam Krishnasamy founded the company in a warehouse in Chennai in 2010 as Freshdesk, rebranding it Freshworks in 2017. Their goal was to create a ‘fresh’ helpdesk in response to a poor customer service experience Mathrubootham had.

Freshworks specializes in customer support, and hosts messaging platforms and AI-backed chatbots. Its main offerings are cloud-native CRM, ITSM and HR tools. It has over 50,000 customers globally, and is looking for more.

The company set out its growth strategy in its IPO prospectus: “Since our founding, our journey to a multi-product strategy has expanded from CX to employee and IT support, to messaging and cloud telephony, to a unified customer vision. We believe our continued innovation, including delivery of advanced AI and ML capabilities, will translate to a higher value proposition for our customers and increased adoption of our products by both new and existing customers.”

It intends to use the IPO proceeds for working capital, operating expenses, and capital expenditures, perhaps including acquisitions or strategic investments in complementary businesses, services, and technologies, including intellectual property rights, it said. Its most recent acquisitions include Indian IT orchestration and cloud management platform Flint in July 2020, AI-based agent assistance specialist AnswerIQ in February 2020, and AI-based customer success management developer Natero in May 2019.

Delivering value to IT leaders

In the prospectus, it detailed other investments that could interest IT leaders: “We intend to invest in growing our research and development team to extend the functionality of our solutions and continue to bring new solutions to market. Our investments in our Neo platform have helped us accelerate the pace of innovation.”

With its new move, it expects its cost of revenue to increase as it plans to invest additional resources in cloud-based infrastructure and customer experience, and professional services organizations.

Freshworks intends to help organizations without the resources to implement expensive legacy SaaS solutions by bridging the technology gap existing with well-capitalized organizations. It plans on offering users powerful software features and functionality needed to be effective, such as AI/ML for greater automation while reducing complexity and feature bloat. “We invest significant effort upfront in the product development lifecycle, studying and analyzing how the user will engage with the product end to end, and then designing our solutions with a user-first approach.”

It also plans to invest aggressively in direct and indirect sales and marketing capabilities, including investments in outbound sales motion teams to continue to acquire new mid-market and enterprise customers. “We also believe the ongoing tailwinds of cloud adoption and digital transformation will drive further adoption of our products by organizations of all sizes,” mentions the company prospectus.

Freshworks also plans to invest in its partner ecosystem to fuel additional customer acquisition. Its partner ecosystem consists of channel partners (400+), independent software vendors (350+) partners, and the marketplace.

Effects on the software industry

The Freshworks IPO made 500 of its nearly 5,000 employees instant millionaires, something that will surely raise the appeal of working for other SaaS startups.

Other Indian SaaS companies are also considering going public, among them RateGain Travel Technologies.

IDC’s Baidya said the Freshworks IPO, and the success of other Indian firms such as Zoho, have earned Indian startups a spot in the global software community that will likely bring them more funding in future.

“Freshworks IPO listing is a great feat opening the door for many other Indian start-up product firms to think big and focus on product innovation,” she said.

Indian SaaS companies are growing 1.5 times faster than SaaS companies globally, according to a July 2020 Nasscom report. India’s SaaS revenue reached $3.5 billion in the year to March 31, 2020, with 75% of that coming from sales outside India.

Nasscom forecast in that report that pure-play Indian SaaS companies could grow their revenue sixfold to a total of $13-15 billion by 2025, if India can build its brand as a global SaaS hub and find sources of investment other than venture capital.

With Freshworks’ splashy arrival on Nasdaq, those conditions are well on the way to being met.

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