The age of “business model innovation” in SaaS is over

This is for SaaS & esp India-SaaS but applies more broadly as well. I’ve been investing in India-SaaS since '18 & harping abt this endlessly to anyone who’d listen. I’ll say it again: the age of “business model innovation” in SaaS is over. It’s done. What does this mean? 🧵1/20

If you don’t have a fundamental product or tech innovation at the heart of your company, you are looking at a 10yr slog ending in a $5-10M ARR plateau → a [10-20]% CAGR lifestyle biz; a sub-$50M M&A by the category leader; or a slow death to $0. What changed, you may ask? 2/20

10yrs ago, “GTM as product” still had a shot. Building a basic SaaS product was *hard*. Cloud was in relative infancy. At GCP, the 1st thing customers would ask us was ‘why should we entrust our mission critical software, infra, data to a 3rd party?” Today we laugh @ this Q. 3/20

Things are diff now. As a CEO, if you don’t have a cloud strategy you get fired. As a CTO, you don’t have an AI strategy, you get fired. As a CMO, you don’t have a digital/social media strategy, you get fired. 1000s of companies have filled tiny pieces of solutions space 4/20

Building a basic SaaS app is easier than ever. The cost of building is now -ive! AWS, GCP, etc will *hand you money* to build on them! A combo of cloud, builderAI, webflow, stripe, fivver, gusto/plum, stripe/razorpay, and you got a site, logo, payment, even a basic MVP 5/20

Sure you still have to go get buyers but imagine 200 people knocking your door to sell you similar sounding things? That’s what majority of SaaS landscape today looks like. Good luck if you are building into S&M, security, productivity, or even parts of devtools e.g. MLOPs 6/20

Which brings me to India – if we aren't careful, a lot of India SaaS risks falling into “shrinking whitespace” category. Imagine a heavily scribbled whiteboard w/ a tiny little white spot – that spot is attractive but will get scribbled on sooner than you can shout “mine!”. 7/20

Founders need to find the “blind spot” or the “rug hole” opptys. What are they? Per Larry Page blind spot is the "zero-B" problem: a $B gap w/ $0 being spent on it today. 10yrs ago, blind spots could be more "GTM" e.g. SFDC not focused on SMBs. Now they are mostly in “tech”. 8/20

A “rug hole” oppty is what it sounds like. Put a finger into a small hole, start ripping the rug apart till the hole is $1B wide. These are often “product” innovations – a vastly simpler workflow (Wiz), vastly viral product (Postman). Or my personal fav: “category creation”: 9/20

Category creation is hard as nails. Takes yrs of what my ex-colleague @martin_casado calls mkt “annealing”. I am frankly jealous he named it 1st as it's just the *perfect* word for what it takes: yrs of shaping like a metalsmith. It's a war craft AND an art. No guarantees! 10/20

The sum total of all this is that the age of “me too” tooling is now gone. Building *hard* tech to solve hard problems is what will survive the next 10 years. Frankly as a VC, nothing is more exciting to us and we’ve been lucky to invest or know several of these in India: 11/20

At @LightspeedIndia , our SaaS thesis was always rooted in (1) global best teams working towards (2) inevitable trend-lines, & then capitalize them well for success. Our *seed* checks were often $3-4M way back in 2018 when market was doing 0.5-1M “option value” seeds. E.g: 12/20

Our seed portco @PixxelSpace is building world’s most advanced hyperspectral satellite constellation. A classic “rug hole”, the hyspec market was nascent but inevitable due to recent camera tech advances. They raised $33M seed+A & are abt to make many big splashes this yr! 13/20

Or take @acceldataio: we backed them in 2018 (my first deal w/ @dkhare!) w/ a long term thesis around “data observability”: not even a well-known category back then. They’ve gone from strength to strength, raised close to $100M on their mission to become a category leader. 14/20

Or @yellowdotai – a “conversational AI” co. What they were doing fell into a "-ive category" called chatbots. We seeded them with a 4M+ check in 2018 with a thesis rooted in automation in client-customer convo. They’ve gone on to raise $100M+ & one of the category leaders. 15/20

Or @Hubiloconnect – another 4M+ seed in '20 building world’s most advanced event-marketing tech ground up. Our thesis was rooted in events becoming a key part of mkting-led lead-gen. They continue to grow post the pandemic era & have raised a massive $150M+ since '20. 16/20

Or @goRattle-a “shockingly easy-to-use*” S&M automation tech riding on "slack/teams as the centre of work" tailwind for future knowledge workers. A long term thesis-led seed investment, they've raised ~30M since '20 w/ the best mascot of all our portcos 😉 *customer quote. 17/20

Outside of our select portfolio, companies such as @getpostman @AtlanHQ @HevoData @browserstack @100mslive and so many others are building really tough tech to solve tough tech problems. We are excited about this *tech & product-first* innovation coming out of India. 18/20

Lightspeed's India>>world engine is a shoe-in for SaaS founders. W/ my partner @dkhare in US & a large community of founders we’ve built, playbooks for hiring, PR, legal, finance, & a 💪 network of customers/GTM leaders, we make founders productive in US soon as they land! 19/20

This deserves repeating: innovating on the hard-to-build stuff is the only way to make a winning play in SaaS. If you are an India-SEA based SaaS founder building for the world & looking for the right partner, talk to us about your company! DMs always open! cc: @LightspeedIndia

Originally tweeted by Hemant Mohapatra (@MohapatraHemant) on February 10, 2023.


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