Vendor CDD For A SaaS Player

Technology

18 Apr 2024

In the following section, we'll take a closer look at the latest investment trends in the Indian SaaS sector, exploring the deal activities undertaken by private equity and venture capital firms. At Praxis, we take pride in our role as facilitators & enablers, aiding new age businesses to demonstrate their capabilities and raise capital to fuel their future growth. Moreover, in this newsletter we will intricately examine the comprehensive vendor due diligence exercise recently undertaken for a logistics-focused SaaS company, elucidating the meticulous steps and methodologies employed throughout the process.

The Indian SaaS sector was one of the top sectors within the Indian technology space, to receive the largest amount of investments in CY23. Exhibit 1 demonstrates that FY24 (9 months) witnessed a consistent influx of investments with some recent fundings, featured in exhibit 2.

These deals demonstrate that numerous investors are actively seeking investment opportunities in SaaS startups. Making it paramount for these startups to underscore the defensibility and competitive advantages inherent in their subscription-based business models and showcase their strategic focus on scalability and recurring revenue, that is crucial for securing capital and positioning them towards potential exponential growth. At Praxis Global Alliance, we've been instrumental in conducting due diligence for numerous firms, empowering them to showcase their robust performance and defensibility to a diverse array of private equity and venture capital firms. A recent instance of our expertise is reflected in the vendor due diligence we executed for a logistics SaaS provider. The ensuing section outlines the meticulous step-by-step process we employed throughout the due diligence exercise.

Step 1: Market definition

Indian logistics SaaS market provides a variety of products and services aimed at helping businesses improve their logistics operations. Our vendor due diligence focused on ERP, freight & supply chain visibility, inventory management, fleet management and asset tracking segments as illustrated in exhibit 3.

Step 1(a): We employed a comprehensive methodology for sizing the TAM, actual logistic SaaS market size and growth of this sector. For this, we first estimated the spend of relevant enterprises across geographies and industries on various logistics activities (bifurcated across transportation, warehousing, hyperlocal spend, etc) as a % of their respective revenue pool. Out of this expenditure, we further estimated the % addressable spend on logistics SaaS across the same splits, this aided us to calculate the TAM for logistics SaaS.

Next to calculate the actual logistics SaaS market size, we first found the % penetration of logistics SaaS industry players in different logistics activities, multiplied by the % spend tapped by each player which was summed to arrive at the final answer.

For this exercise, we gathered data from a range of industry databases, conducted various customer interactions and gained valuable insights from interviews with the industry experts. This comprehensive approach that is mentioned in exhibit 4 ensured a precise market estimation, grounded in logical and well-founded assumptions.

Step 1(b): We projected the current market size based on multiple underlying growth drivers and market trends to arrive at the future TAM of the different segments within the logistics SaaS market in India as mentioned in Exhibit 5. Our analysis showcased enormous growth opportunities in the segments where our client is present, as the adoption of logistics SaaS increases within the industry.

Step 2: Competitive benchmarking

As part of the next step, we first mapped out key players present in different segments of the logistic SaaS landscape as demonstrated in exhibit 6. Then we compared the client with its direct competitors on a comprehensive list of offerings ranging from target customer profile to financial metrics, showcased in Exhibit 7. This aided the client in discerning its unique selling proposition and defensibility against its competitors. Moreover, it validated that the client's existing product positioning is in accordance with the evolving demands of market, providing a compelling narrative for presentation to investors.

Step 3: Customers feedback

As part of this study, we compiled a comprehensive list of customer pain points affecting players in various stages of the logistics value chain. Subsequently we conducted in depth interviews with key stakeholders to classify these pain points based on their level of criticality. This helped us identify key success factors as mentioned in exhibit 8, instrumental in creating a sustainable brand in the competitive market of logistics SaaS. Our diligence study aided the client to showcase its efforts in addressing some of the most crucial customer pain points through its offerings that enables them to retain existing clients and attract new customers.

Step 4: Business plan validation

As part of our business plan validation process, we estimated the revenue across different segments to derive a comprehensive net revenue potential for the company in the future. This dynamic analysis not only provided a snapshot of the existing revenue streams but also offered a forward-looking perspective on future revenue projections from various segments as presented in exhibit 9.

We projected the future EBIDTA potential by harnessing key growth drivers as mentioned in exhibit 10, thereby identifying and quantifying the overall improvement potential.

In conclusion, our comprehensive vendor due diligence process played a pivotal role for the logistics SaaS player in showcasing its true potential to effectively communicate the market opportunity, its current performance, the defensibility it has created, and its competitive advantage to secure investments.

The strategic assessment of the total addressable market, competitive, market growth projections, and future revenue potential for the next five years equipped the player with a compelling narrative to attract investment and unlock their next stage of growth.

Praxis remains committed to guiding businesses through the complexities of the investment landscape, ensuring they stand out and thrive in the competitive technology and internet market.