Dear Reader,
Welcome to the 53rd edition of the good reads newsletter by Malpani Ventures. Sharing your weekly dose of articles for this weekend’s reading!
How tiny, cheap smart speakers unlocked the rise of digital payments in India
https://restofworld.org/2023/india-sound-boxes-paytm-phonepe/
We often imitate innovative concepts from the West but fail to understand our needs, preferences, and motivations are different. In this case, UPI and the innovation around it have taken the world by storm. While UPI is subsidized by the government in India and payment companies barely make money from payments, indigenous innovation of the Sound Box means a steady stream of revenue for payments companies like PayTM, PhonePe etc, and relief and benefits for shopkeepers who can confirm payments and also avail credit.
Vertical Operating Systems
https://a16z.com/2023/04/06/vertical-operating-systems-one-system-of-record-to-rule-them-all/
Operating Systems (OS) are systems of record on which other applications can be built on. The most valuable OS is a vertical OS - because it can potentially run the entire company. While Quickbooks is a system of record, Toast is a vertical OS for restaurants. Eventually, a vertical OS can shrink the TAM of horizontal software competitors as they keep adding more and more functionalities making the use of ‘yet another software or tool’ pointless for their customers. For example, Toast offers payroll, kitchen management, team management, and other software modules, which could shrink the addressable market for horizontal competitors in those segments. Having said that, the key to profitability is a GTM with profitable unit economics. The ideal economics of this business has $12k ACVs with 80% gross margins and 12-mo payback.
Bellwethers of Indian SaaS
https://www.upekkha.io/ey-upekkha-report
EY & Upekkha came together to create the Bellwethers of Indian SaaS report. Key observations:
Burn multiple- While a burn multiple of <2 is acceptable globally, most companies in India have a burn multiple of <1.5 reflecting them building & scaling efficient businesses. 8 out of 10 companies with ARR > US$10 million have a burn multiple under 1.5x retaining capital efficiency even at
growth stages
Vertical SaaS growth- Almost all Vertical SaaS companies are aiming to grow 50%+. This is by aiming to serve the huge SMB market through a differentiated and niche offering
Challenges- Longer sales cycles, sales inefficiency and retaining a good team are the main challenges faced by Indian SaaS companies