In their most recent annual study on the industry, global management consulting and strategic advisory firm Zinnov and venture capital firm Chiratae Ventures reduced the 2026 revenue forecasts of Indian software-as-a-service or SaaS startups from $100 billion to $26 billion.

A recession is a major issue for Indian SaaS startups, according to the report, India SaaSonomics: Navigating Growth and Efficiency, but it has shown exceptional resilience to weather difficult times.

The analysis identified three issues hurting the sector: customer turnover, sluggish client demand, and dragged-out sales cycles, and negative pressure on cash flows brought on by macroeconomic headwinds.

“We still anticipate continued company growth through 2023. When the macroeconomic environment is taken into account, the growth rate has undoubtedly corrected to an estimated level. In a chat with ET, managing director and partner of Chiratae Ventures Venkatesh Peddi stated, “Based on what we’ve observed, we were anticipating the ecosystem to develop at a 50% to 55% level, but that has changed.

DevOps, cybersecurity, and vertical SaaS categories will drive the next phase of development and innovation, according to Chiratae Ventures and Zinnov.

Late-stage funding has decreased as a result of a reduction in SaaS firm values on the public markets. The first quarter of 2023’s consistent venture capital deal volumes, according to the research, indicate that the sector’s funding slump has peaked and that a gradual recovery may be anticipated soon.

SaaS businesses are actively reevaluating their product and sales tactics to counteract a decline in profits, client turnover, and a delay in the whole sales cycle, as ET reported in April. Falling revenue is a challenge for Indian SaaS startups, which may result in down-rounds or funding at lower valuations than the previous round, according to founders and investors ET spoke to. This is because sales cycles are lengthening as a result of finance teams’ involvement in purchasing decisions and enterprise customers’ ongoing cost-cutting.

The fine print

According to the research, over 1,650 funded SaaS startups are currently located in India. Since January 2019, the number has doubled. Sixty percent of the 186 SaaS firms that were formed by employees of 21 Indian SaaS unicorns in the last three years have their roots in this time.

“Although it’s unlikely that we will reach 2021 valuation multiples in the near future, we are beginning to notice consistent stabilization and hints of a slow recovery. Despite trying circumstances, investors’ faith and entrepreneurs’ tenacity are unwavering, said Atit Danak, partner at Zinnov.

The epidemic hastened corrections in global public value multiples, which happened in 2022. The current median valuation multiple is 6.6X, but it has gradually recovered since October 2022.

Chiratae Ventures, which was established in 2006, has invested more than $160 million in more than 35 SaaS (software-as-a-service) businesses, including Pixis, Uniphore, Hevo Data, Healthplix, Pando, and Deepfence.