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COVID-19 will expose valuations of SaaS firms, says Zoho Founder Sridhar Vembu

Updated : April 30, 2020 01:45 PM IST

COVID-19 pandemic could make for a stern test for the present-day valuations and lead to consolidation, says the SaaS guru

There are too many software as a service (SaaS) companies, with too many apps, and in times like this, they end up getting exposed. That’s the word from SaaS guru and the founder of Zoho Corp, Sridhar Vembu. He believes that the COVID-19 pandemic could make for a stern test for the present-day valuations of SaaS companies and lead to some extent of consolidation across the ecosystem.

“Valuations will take a beating and the immediate impact is that everyone will end up losing revenue, while the long term will see consolidation happen,” he said while speaking to journalists on video-call at the launch of Zoho’s latest products to help businesses in the COVID-19 Pandemic.

Incidentally, this isn’t the first time Vembu has criticized the kind of steep investments being made in cloud companies, which has, in turn, inflated their valuations. In an exclusive chat with CNBC-TV18 in early 2019, he said that overcapacity and overfunding in cloud companies could impact the business if it went unchecked.

‘Firms with hyper-growth and big VC funding won’t recover’

“The question remains: which are the valuations that will come back and which are the ones that won’t? The valuations that depend on hyper-growth and VC spending, won’t recover,” Vembu added, “The valuations that are based on the underlying strength of a company’s business model will recover. This will separate the durable SaaS companies from the flashy ones.”

SaaS firms like Chennai-based Freshworks have been making headlines in recent times for rising valuations and big-ticket funding. Most notably, August 2018 saw the company raise $100 million from existing investors Sequoia Capital, Accel Partners, and Capital G. This made it the latest entrant into India’s coveted unicorn club and saw its valuation rise to approximately $1.4 billion.

ALSO READ: Tough days ahead for SaaS cos; but they have in-built advantages too

“Companies with good balance sheets and those that don’t have too many cost overheads will survive,” Sridhar said, “We at Zoho will continue to innovate and continue, and we will see a few more innovations in the next 5-6 months.”

Although consolidation across SaaS and cloud companies could well become an eventuality, the Zoho boss ruled out any possibility of his company on the lookout for acquisitions. “We are not looking at any acquisitions right now,” Vembu said, “We are certainly not looking to borrow money or raise funds in this environment.”

Zoho to launch more remote offices

Zoho has also adopted a strategy to open smaller offices in smaller towns, like its centres in Tenkasi and Renigunta in Tamil Nadu and Andhra Pradesh, respectively. “When the pandemic ends, we are going to start smaller and more remote offices,” said Sridhar, “Our offices are going to comprise teams of between 10 and 20, and this will be our focus as we begin opening many remote offices.”

At present, in the midst of the COVID-19 Pandemic, almost all of Zoho’s 3,800 employees work from home, with a skeletal staff of 30 continuing to visit its centres for maintenance and upkeep.

COVID-19 will expose valuations of SaaS firms, says Zoho Founder Sridhar Vembu

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