Deal focus: Darwinbox's unusual path to unicorn status

The evolution of Darwinbox’s investor base reflects not only the increasingly large equity checks required to support expansion, but also the global nature of its ambitions.

“When we started our journey of building a state-of-the-art SaaS product from India, one thing was clear for us – we envisioned global human capital management (HCM) leadership,” said Jayant Paleti, who founded the business with Rohit Chennamaneni and Chaitanya Peddi in 2015. (Paleti is pictured, centre, with Chennamaneni and Peddi, left and right.)

“The idea was never to restrict ourselves to a particular vertical within the area of HCM or to a particular geography. We wanted to build a product that has potential to deliver value globally as well as an appeal to organizations across industries.”

Initial funding through 2019 was domestic, with Lightspeed India Partners, 3one4 Capital, Endiya Partners, and Sequoia Capital India participating. Since then, the likes of Salesforce Ventures and Thailand’s SCB 10X have been added to the investor roster, the former offering access to one of the biggest global SaaS players and the latter pledging on-the-ground support in Southeast Asia.

They have all re-upped in a new round of USD 72m – at a valuation of USD 1bn – led by Technology Crossover Ventures (TCV), a US-based growth equity investor. Darwinbox has become Asia’s first unicorn in the HR technology space and one of relatively few India SaaS players to achieve this landmark through an expansion story that doesn’t revolve around North American customers.

Common needs

Darwinbox positions itself as an end-to-end HR services provider that caters to corporate needs across the employee lifecycle, from recruitment to retirement. More than 650 enterprises with 1.5m employees across 90-plus countries use the platform to manage attendance, payroll, travel and expenses, employee engagement, performance assessment, and people analytics.

Customers range from fast-growing technology businesses (Zilingo, Zalora, and Carousell) to large regional enterprises (SBS Transit, JG Summit Holdings, Wilmar, and Salim Group) to global brands (Nivea, Starbucks, Dominos, and Cigna). In Southeast Asia alone, revenue has grown 300% in the past 12 months. It is expected to accelerate in 2022 as COVID-19 prompts uptake of digital HCM tools.

Dev Khare, a partner at Lightspeed, has previously compared emerging Asia to the US in the 2000s, when the first SaaS companies to take off were those that sold to all industries. Darwinbox operates in a specific vertical, but its product offering is widely applicable.

“Darwinbox is a single system of record for all employee-related data and business workflows. It doesn’t limit itself necessarily to specific SaaS verticals or industries. The broader the utility of a product, the easier it will be for it to expand across borders as well as across industries,” said Paleti.

This doesn’t mean cross-border expansion has been easy. Southeast Asia lacks cultural and linguistic homogeneity, and it has varying levels of wealth and technology penetration. These factors have implications for product-market fit, timing of entry, pricing, and value proposition. On the other hand, those able to develop products that are attuned to local cultural quirks and needs stand to prosper.

Singapore is among the top three markets in Asia Pacific with the largest overall IT spend across applications, platforms, infrastructure, and services. Meanwhile, in ASEAN, cloud spending in Indonesia, Malaysia, the Philippines, and Vietnam is expected to see compound annual growth of 25% through 2024.

Darwinbox completed a market-level analysis to reinforce the product-market fit and also tweaked its product offering. “Our product is built on an extensible and composable architecture that allows us to partner with any ancillary incumbent application. And things like linguistic capabilities, and regional compliance had to be taken care of before we made the big leap,” said Paleti.

Battle-ready

The company claims to be the third-largest HCM SaaS provider in Southeast Asia, and it is pursuing an aggressive growth strategy in Southeast Asia and the Middle East and North Africa (MENA). There are plans to hire 100 additional staff across Singapore, Kuala Lumpur, Jakarta, Manila, and Bangkok this year, tripling the current Southeast Asia headcount. The US is next on the agenda.

Paleti noted that the company’s success is built on three relatively simple pillars that are not necessarily specific to geography: enabling a high degree of configuration so customers can adapt to rapidly changing work environments; focusing on the end-user experience; and providing a consistent yet cost-effective service that recognizes the challenges of change management.

However, when asked whether Darwinbox’s origins have encouraged a different approach to development from peers solely focused on North America, he suggested that operating across multiple markets toughens up companies.

“The idea was to master the Asian context – one region at a time to build enough capability to tackle the West head on when we finally make the global move,” Paleti said. “Not only have we gained valuable experience of solving for complexities in Asia, but we have also successfully competed and won against the global competition in the region, which prepared us to launch in the West.”

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• Topics
• South Asia
• Southeast Asia
• Expansion
• Technology
• India
• enterprise software
• Growth capital
• TCV
• Sequoia Capital
• 3one4 Capital
• Lightspeed Venture Partners