13 highlights
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Against this backdrop, it would seem surprising that India’s best known SaaS company, the Chennai- and San Mateo-based Freshworks, would want to raise only $100 million in its impending initial public offering on the Nasdaq. Or so it has said in its filings with the US Securities and Exchange Commission. Analysts have estimated that the IPO could value it at $10 billion—meaning the company wants to just give away a percent of its capital in the public offer of shares.
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For one, Mathrubootham has made it clear, both inside Freshworks and in some public statements, that the $100 million figure is only a “placeholder” for its initial filing with the SEC. Once the terms are ironed out, the final IPO prospectus could and likely would have a different figure.
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But it’s still curious that Mathrubootham would choose to lowball even the initial proposal for the offer at a time when public market investors, particularly in the US, are extremely bullish on tech stocks.
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For three decades, India was predominantly known as an offshoring and outsourcing location driven largely by cheap manpower costs. Despite its large IT workforce, it did not have product companies that sold directly to end customers, making them just a spoke in the wheel.
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Mathrubootham made a critical move. Till 2018, he operated out of Chennai, now labelled the SaaS capital of India, as several unicorns are headquartered here. He had often said, until then, that he wanted to show to the world that he wanted to build a global player out of Chennai.
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Something changed with the Series G funding. Mathrubootham moved his executive suite to Silicon Valley and redid his go-to-market strategy. He hired his marketing, sales and product heads from US companies, paying top dollar salaries, and also a finance head who had experience in listing a startup on the Nasdaq.
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The company also says that revenues from existing customers alone grows year-on-year, as they buy more services and, therefore, even if the company adds 20% new revenue it ends up with high annual revenue growth.
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Chennai-based Chargebee, a recent unicorn, offers recurring payments related solutions for SaaS players, saw its valuation triple in six months to $1.4 billion on the back of rapid growth of pay-per-use software. Postman, a platform for testing and developing APIs, saw its valuation shoot up to $5.6 billion in August from $4 billion in June.
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US-based investment banking firm Piper Sandler’s Future of Work index (which tracks 26 software and services firms mostly in the SaaS domain) ended 102% up in 2020 (+56% in 2019) outperforming the S&P 500’s 16.3% increase.
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Freshworks is also upping its ante. When it first started, its products were similar to its competitor Zendesk but it lured customers offering free subscriptions to its products so that they could experience. Eventually, it converted many of these customers into paying ones and slowly offered more services to make bigger inroads into an enterprise.
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It now is putting its energies into Freshworks Neo, which will be a platform in which its customers can choose an array of services. The platform will be akin to what Salesforce, the most valued SaaS company, offers its customers or Microsoft’s Azure is to its users
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One dark spot, however, is a suit filed by its competitor Zoho, which has alleged that Freshworks used stolen customer data to build its business. Zoho, which had earlier employed Mathrubootham, filed its cases in March and November last year and it is currently being heard in the US courts.
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Pai says that, though, for all practical purposes, FreshWorks is an American entity looking at listing on the American exchanges, the fact that the employees and the founders are Indians does speak volumes about the potential of the Indian SaaS space.