The worst-kept secret in venture capital? VCs love software-as-a-service (SaaS) startups.
With SaaS startups bringing in predictable and recurring revenue, often at more or less the same fixed costs, the upsides to their businesses make them an attractive investment. Besides, unlike their consumer counterparts, SaaS companies can scale globally right from the get-go.
Despite the promising proposition, SaaS startups within Southeast Asia have not enjoyed as much success as their European and American counterparts. Compared to the West, success stories have been few and far between in the region.
However, Akshay Bhushan, Partner at Lightspeed Venture Partners, remains optimistic about the sector. He believes the large concentration of small and medium enterprises (SMEs) within Southeast Asia, coupled with the push towards digitalisation, would make the region a fertile breeding ground for SaaS companies.
e27 sat with Bhushan to dig deep into the region’s SaaS industry. Below are the edited excerpts from the interview:
What are some aspects of the SaaS model that have made it a favourable vertical for investors to invest in?
When it comes to SaaS, investors are most interested when the startup has early product-market-fit with enterprises. At that point, the risk for the investor is more on execution rather than the business model or product. This attractive risk-reward perspective makes it alluring to investors.
The other attraction is the inherent nature of SaaS products such that they can be developed anywhere and built for global markets.
For instance, the SaaS solutions of our portfolio companies Yellow Messenger and Darwinbox were first developed outside of Southeast Asia. However, their current clientele chiefly comprises enterprises operating across the world, including several customers in Southeast Asia.
Also Read: 5 things Saleswhale learned about building a global SaaS platform from Southeast Asia
Due to the pandemic, enterprises have gotten more comfortable with remote sales, making it easier for SaaS companies to scale their business. Besides, many enterprises were forced to digitise, even in sectors that were previously resistant to change.
What are the common challenges faced by SaaS companies in their early stages of operations?
For SaaS products, the iteration and testing cycles are typically longer than other types of startups. Hence, achieving a product-market-fit takes longer.
This is because the process of getting feedback from enterprise users (which often spans multiple individuals across multiple types of organisations) is longer relative to a consumer startup that can directly monitor user behaviour and speak to them and make direct inferences.
How do you see SaaS as a vertical grow within Southeast Asia in the next one to three years?
We are optimistic about the prospect of SaaS in the region, especially in leading markets such as Singapore, Indonesia and Malaysia. These countries have very prominent SME sectors in which many enterprises are seeking to adopt digital solutions.
Certain countries, like Singapore, are also strategic launchpads for SaaS companies in the region. It is a gateway to Southeast Asia for regional and international corporates who base themselves out of there and an ideal hunting ground for customers early on.
With two of your portfolio companies (Chilibeli and Ula) focused on working with SMEs, what were some initial challenges faced getting warung owners to digitalise and how did both companies overcome these?
Chilibeli and Ula are unique in the way that they’ve lasered their focus to one particular SME segment — microbusinesses, which in countries like Indonesia, are mostly known as warungs. SME digitalisation is already a challenge in itself, but it is more pronounced for microbusiness owners as their needs are more nuanced.
Also Read: How BukuWarung is changing the back alleys of Indonesia
Microbusinesses typically have less capital to invest in software and may not be as digitally literate as larger enterprises. Hence, solutions geared for this segment need to meet ‘must have’ needs’ rather than ‘nice to have’ needs.
More often than not, the biggest question an SME owner asks is: “How can the product either make me more money or save a substantial amount of money?” Hence, the value proposition for the owner has to be clear from the beginning.
Does the rise of SPACs interested in acquiring Southeast Asian tech startups bode well for the startup ecosystem as a whole?
Essentially, anything that helps drive liquidity is good for the startup ecosystem. SPACs are just another vehicle to help stakeholders generate more value through liquidity.
Also Read: What does Peter Thiel-backed Bridgetown’s IPO mean for SEA’s startup ecosystem?
While SPACs aren’t new, we are cognizant of how it is trending as a channel for liquidity, so it’s something that Lightspeed has been tracking very closely.
With the increased attention on SPACs and the value they provide for companies in helping them go public, could we see a scenario where companies rush their public exit and list prematurely (without strong fundamentals and a sustainable business)?
There’s a possibility of companies reacting this way. However, companies would generally choose the avenue they think is most beneficial. This means that this selection would happen on a case-to-case basis, and is highly dependent on the company itself and the specific situation it is in.
What are some sectors you are looking at within Southeast Asia that have great potential to grow in the near future?
Southeast Asia is rife with opportunities and there are many sectors primed for growth. We believe that the ‘foundational’ sectors are very interesting. These include sectors that power the infrastructure of the digital economy such as fintech (payments), logistics-tech and commerce use cases.
Another very interesting area is in the consumer sector — namely, the rise of the creator economy. We’ve observed that there’s tremendous growth in online social behaviour in fast-growing markets like Indonesia and Vietnam. This rise has also contributed to the growing influence of new-age content creators.
As such, Lightspeed has been looking closely at next-gen commerce models leverage such influencers. The current generation — pioneered by social selling and video-based influencer selling — represents the tip of the iceberg when it comes to commerce penetration.
We believe that, as the role of online creators grows, there will be many new models of commerce which will get unlocked.
Image Credit: Lightspeed
The post Value proposition of SaaS for SMEs has to be clear from the beginning: Akshay Bhushan of Lightspeed appeared first on e27.