Fund focus: Iron Pillar takes India SaaS to the world

There were always two key strands to Iron Pillar’s venture-growth strategy: India for India and India for the world. For its second vintage, the firm has decided to raise separate funds for each one.

“From when we started in 2016, there was always a lot of capital for the 'India for India' theme, but for companies going cross-border, after Series A they had to look to global investors. There were no growth-stage SaaS [software-as-a-service] funds in India,” said Anand Prasanna, a managing partner at Iron Pillar (pictured, centre, with fellow partners Mohanjit Jolly and Ashok Ananthakrishnan).

Iron Pillar has now filled what appeared to be a gaping hole in the market by raising a cloud software fund with USD 129m in commitments. The vehicle – which launched early last year and achieved a final close in December – will make Series B and C investments in start-ups emanating from India that have SaaS and cloud infrastructure solutions relevant to global markets.

Iron Pillar raised USD 90m for its debut fund in 2018 and completed a USD 48m top-up two years later, supported by development finance institutions, sovereign wealth funds, financial institutions, family offices, and technology entrepreneurs. All existing institutional backers have re-upped for the cloud software fund where they are joined by the likes of two endowments and one foundation.

“Some people like ‘India for the world’ because it allows them to invest in India without taking currency risk and reducing exit risk because companies will be sold to US private equity or go public in the US. This applies especially to those who are relatively new to India,” Prasanna said.

“On the other hand, some people have done enough in India, and they are happy with the risk – they underwrite it against growth. They want specific exposure to domestic consumption, companies going into the Middle East and Southeast Asia is a plus. Those people invest in an India fund.”

Iron Pillar has already held positive discussions with LPs about a complementary India for India vehicle, which would touch on the areas that have proven most promising in Fund I – from consumer brands to biotech to cloud software.

The most mature Fund I portfolio companies are Uniphore, a developer of voice recognition artificial intelligence (AI) systems that support customer engagement across multiple languages, and Servify, an after-sales software provider.

Uniphore is an established unicorn, having closed a USD 400m Series E in February 2022. Servify has barely raised USD 100m since its inception – a USD 65m Series D was completed last August – but growth has been strong and steady. Both companies have global footprints and generate more than USD 100m in annual recurring revenue (ARR) through subscriptions.

They are emblematic of what has become an established India SaaS phenomenon: sales executives helming a front office in the US; the bulk of engineer-heavy workforce engaged in product development and service delivery out of Bangalore. Investors began to take notice amid the pandemic-driven global SaaS boom of 2020-2022 when India’s unicorn population doubled in size.

According to Prasanna, the correction in public market valuation multiples is now reflected in private markets, but some start-ups are still posting rapid growth. The broad opportunity set is also unchanged. When Iron Pillar was founded, India’s SaaS ARR was sub-USD 1.5bn. It hit USD 12bn last year, and Bain & Company expects it to reach USD 35bn – or an 8% global share – by 2027.

Within SaaS and cloud infrastructure, Iron Pillar is most interested in automation, cybersecurity and governance, DevOps (which combines software development and IT operations), and the future of work and education. Fund II companies gaining early traction include Ushur, an AI and automation specialist that recently announced a USD 50m Series C. Iron Pillar led the Series B in 2021.

Usher has bases in Santa Clara and Bengaluru, and its Series C was led by US-based Third Point Ventures. Iron Pillar has a presence in Bengaluru, Mumbai, Palo Alto, and Dubai – and Prasanna suggests this breadth of resources is one reason why other Indian VCs don’t have cross-border funds.

“You need a global team with global capabilities, whether that’s business development or recruitment. We have a product tailored for Indian founders who want to take their companies global,” he said. “No one else has done that. And for someone starting on the journey today, it’s going to take a few years. We see a competitive advantage and we want to capitalise on it.”

The major challenge Indian SaaS companies face when building out globally is finding talent outside of their home market. When asked what Uniphore and Servify have done especially well, Prasanna immediately highlights the companies’ success in professionalising their management teams.

“Both have very self-aware founders who realised that to build a global company they need to surround themselves with high-quality global talent that is better than them in certain domains. They have managed to attract and retain these rockstar teams, delegate the work to those folks, and then focus on what they are good at.”

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