Pentathlon’s Vision For B2B SaaS: A Deep Dive Into The ‘Selective’ Investment Thesis, AI Insights & Fundamentals

Marc Andreessen had it right when he declared, “Software is eating the world” in a 2011 Wall Street Journal article. More than a decade later, SaaS (software as a service) is still thriving. But enterprises and end users are keen to leverage the AI edge to usher in new, more efficient and cost-effective software solutions than traditional SaaS.

That does not mean enterprise/B2B SaaS, as we know it, is in any immediate danger. The Indian SaaS market size is estimated to reach an annual recurring revenue (ARR) of $50 Bn by 2030 as the ecosystem caters to local and global clientele. Additionally, SaaS centaurs (startups with $100 Mn ARR) and unicorns are expected to generate between $20 Bn and $25 Bn in revenues by that time.

The growth has been further fuelled by venture capitalists putting in $32 Bn+ (according to Inc42 data) across India’s enterprisetech ecosystem between 2014 and 2023, per Inc42 data. Besides, more than 13 pure-play B2B SaaS-focussed VC funds were launched between 2022 and 2024, while every sector-agnostic or B2B-focussed technology fund has SaaS or enterprisetech as one of its key focus areas.

But there’s more to it. Industry experts are now debating a fundamental rethinking of the software industry and how an innovative blending of SaaS and artificial intelligence may soon emerge as the next big technology transformation.

When Pune-based Pentathlon Ventures announced its second B2B tech fund with a corpus of INR 450 Cr ($54 Mn), it caught our interest for several reasons. For starters, its primary focus is deep-diving into B2B SaaS, but it is not too vertically focussed and its approach is industry-agnostic. More importantly, it explores Digital Transformation 2.0 (read an enterprise AI makeover), along with new-age SaaS. Ensuring that Indian tech startups can use this basket of technologies for innovative products, global scale and sustainable growth is Pentathlon’s mission.

Set up in 2020 by a team of seven, Pentathlon is positioned as a founder’s fund and brings more than 150 years of cumulative entrepreneurial and investment experience. It launched Fund I with a corpus of nearly INR 80 Cr ($9.5 Mn) and invested in 23 startups. Out of these, 11 portfolio companies claim an ARR (annual recurring revenue) of more than $1 Mn and 8x revenue growth since the VC’s investment.

The second fund came in September 2023, aiming to invest in 25 B2B SaaS startups across sectors, including enterprise digital transformation, ecommerce enablement, fintech, vertical SaaS, applied AI, sustainable tech and healthtech.

Pentathlon’s core team includes Gireendra Kasmalkar (founder of IdeasToImpacts), Sandeep Chawda (founder of Clarice Technologies), Saurabh Lahoti (former investment officer at Grassroots Business Fund), Madhukar Bhatia (founder of Sapience Analytics), Ashok Mayya (founder, Mayya Consulting LLC), Hemant Joshi (cofounder of Sprih) and Shahshank Deshpande (cofounder of Cubyts).

Asked about the backstory, Chawda said his startup Clarice Technologies was acquired in 2015 by Globant, a New York Stock Exchange-listed MNC. For the next five years, he worked with the U.S. company to scale Clarice from a 300-person team to a 2K-strong organisation.

“I started contemplating my next move by 2019-20 and saw a couple of options. I could launch another startup or build one to help scale 20-25 ventures. That was how the idea of getting into the venture capital ecosystem came to my mind,” he added.

The VC firm has been named after the five-event Olympic sport for a reason. “The qualities required by pentathletes are typically strength, focus, perseverance, stamina and resilience. A startup founder also needs these to become successful and be a part of our VC fund. Hence, the name,” said Chawda.

In an exclusive interaction with Inc42 as part of the Moneyball series, he shared the VC firm’s journey and vision and the opportunities ahead of India’s burgeoning SaaS startup ecosystem. Here are the edited excerpts.

Inc42: Pentathlon primarily focusses on B2B tech. Why did you zero in on this space in spite of more attractive B2C narratives?

Sandeep Chawda: For us, Pentathlon is nothing but a startup in the VC world. For any startup to succeed, there are two crucial things – clear differentiation and clear focus. Our biggest differentiation is that we are defined as a VC firm ‘by the entrepreneurs, for the entrepreneurs’. As for focus, it was clear from Day 1 that we would not invest in anything and everything that could make money. Instead, we would look at going deeper into specific sectors.

As all the partners had exposure to enterprise software, we realised this had to be a core part of our thesis. That way, we could bring more insights to our portfolio companies and help create a more profound impact across many fields. Had we invested in B2C startups, we could not have helped much beyond the capital.

At the time, the choice seemed counterintuitive because India had already witnessed the success stories of B2C startups. Nevertheless, there were early indications that many B2B startups were doing well, which eventually proved true. Of the total 115 Indian startups that have attained unicorn status so far, 44 are in B2B tech, according to Inc42 data.

We felt confident about B2B tech when 15 portfolio companies raised follow-on rounds. We invested in 23 startups from Fund I, and two to three companies are already profitable. Our exit from Tripeur gave us 2.5x returns. This is enough, as 100x usually doesn’t happen in B2B.

Inc42: What is Pentathlon’s USP? What are your key capabilities as a VC fund?

Sandeep Chawda: Many funds are now investing in B2B tech or B2B SaaS. But very few say they are pure-play B2B SaaS funds and solely invest in that domain. Of course, that is our focus area, and as I said earlier, focus is extremely important. In fact, that is one of our differentiators. Our unwavering focus on enterprise SaaS has helped us go deeper into the ecosystem, think up new value additions for our portfolio companies and fine-tune our strategy to find the right companies.

Take, for instance, Tripeur, the company we exited. It specialised in travel spend management and we funded it in early 2020. As you know, the travel industry crashed during Covid-19 and Tripeur had negative revenues at the time. Its founders were under tremendous stress and wanted to give up. We stitched together a bridge round for them, a small round of INR 30-35 Lakh, but no other existing investor came forward then. We also helped the startup trim its workforce, extend its runway and survive a difficult phase.

As the pandemic subsided, its revenue grew at 100% MoM for the next few months and quickly returned to its pre-Covid level. Now, Tripeur is part of the US-based Navan, a $10 Bn company.

It was a terrific journey for all of us. A company that was almost a write-off gave Pentathlon a handsome exit with some help from the VC firm. It was such a leap that the startup’s founder is now an LP for our Fund II.

Inc42: That’s a remarkable turnaround. So, what areas do you target within B2B SaaS and how do you perceive their growth? 

Sandeep Chawda: In the last 20 years, software services companies dominated the entire industry in India. The next 20 years will belong to software products companies from India, which will do exceptionally well.

If we look at our fund and its focus on horizontal SaaS, enterprise AI transformation will be a very prominent theme there. People would have called it digital transformation earlier, but the new flavour of digital transformation is AI transformation and every company has to embrace it. We have made two investments in this space. One is Vodex, which uses generative AI [GenAI] for sales lead validation, and another is ElevateHQ, which uses AI for sales compensation management.

Next in line is the entire ESG [environmental, social and governance] wave, including sustainable and climate tech, now emerging as a strong theme. So, for us, the opportunities are not in ecommerce companies but in products that provide building blocks to take other firms’ products online. We call these ecommerce enablement products, another prominent theme that will play out in the future. Cybersecurity is another area where we see huge potential for Indian software companies.

Given these areas of interest, it’s clear that we are not too vertically focussed and we are also industry-agnostic.

Inc42: Has your investment thesis changed in between? Will you do things differently when allocating from Fund II? 

Sandeep Chawda: Well, our second fund will see a few changes, but the core thesis remains the same. We invest in early stage B2B SaaS companies with revenue between INR 1 Cr and INR 5 Cr. However, we have raised more capital this time. Fund I had a corpus of INR 80 Cr or so, while Fund II is worth INR 450 Cr. This is a big jump – earlier, we were writing cheques of INR 2-2.5 Cr, but now we can write cheques in the INR 4-8 Cr range.

It means we can lead more rounds and negotiate for better equity. Also, our portfolio startups won’t have to approach five other investors to raise the amount they need. Maybe Pentathlon alone or just one more VC fund can co-invest in a round. It will also allow us to do more follow-on rounds.

Additionally, Fund I had a 70:30 ratio for first cheques and follow-ons, but with Fund II, it will be 50:50.

Inc42: Will there be more global opportunities for Indian SaaS startups?

Sandeep Chawda: Let’s go through the opportunities one by one. To start with, talent has never been an issue here. When it comes to talent in the product ecosystem, even if these are not Indian products [MNCs are increasingly setting up their global capability centres or GCCs in India], many engineers got exposure to building and deploying world-class software offerings.

We are also seeing the flywheel effect in the Indian startup ecosystem, creating continued growth and improvement. The scenario was not so vibrant when we launched our venture in 2008. But today, as a VC fund, we evaluate more than 200 B2B SaaS startups every month.

Furthermore, SaaS is not a product. It’s a channel, an avenue to deliver value to end users. It is a powerful growth mechanism because you can provide software as a subscription or software as a service. And it will be easier to scale globally if the product has been thought through from a global perspective from Day 1.

Finally, it comes to markets. Earlier, you would only target the US market as a growth engine when you wanted to grow globally. But that scenario has changed. Companies are now exploring other markets, especially Southeast Asian economies and Gulf countries. These are geographically closer and easier to enter, and the US may emerge as the final base camp.

Inc42: What about unicorns? Do you think many more Indian SaaS startups will reach a billion-dollar valuation soon? 

Sandeep Chawda: After the Covid-19 pandemic, Indian businesses have also understood that SaaS can take their business growth in an entirely different direction. Overall, it is a very welcome change to see the Indian ecosystem consume a lot of software product offerings.

We also see more unicorns emerging from the sector, but we are not swayed much by that tag. Valuation is just a byproduct for companies with decent revenue growth. I value a startup more for making $50-60 Mn instead of one with a unicorn tag just because somebody has decided to give it that valuation.

If a startup sees good growth and its revenues are growing, those are very positive indicators for us. And it is going to happen. The revenues of B2B tech companies will continue to grow at a fast clip.

Inc42: We see a huge price disparity in India compared to global SaaS markets. Can Indian players charge as much as their overseas counterparts? 

Sandeep Chawda: I think it is a function of how much value a company gives to the product and what impact it is going to have on the overall top line or the bottom line of the business. And then they will be more than willing to pay. It is all about how a company values a product and how the product impacts its top or bottom line. If products bring value, companies will be more than willing to pay, and the price disparity will decrease. On the other hand, rising competition in overseas markets may lead to lower pricing and ensure an overall parity.

Other factors may also contribute. For instance, new or evolving technologies can drastically reduce overall costs for product companies, helping them retain their profit margins despite the competition. As Indian businesses invest more in technology, they can leverage it to their advantage and increase their profits without inflating the price index.

Inc42: What are the critical challenges for early stage SaaS startups? How does Pentathlon create a difference there?

Sandeep Chawda: Most tech [startup] founders in India come from a technology background and their tech acumen is usually very sharp. However, we have seen them somewhat lacking in go-to-market or sales and marketing.

At Pentathlon, we have launched an initiative called GTM Dialogues [Go-To-Market Dialogues] to address this. Every month, we pick a different city, such as Pune, Bengaluru, Chennai, Delhi, Noida, or Mumbai, and hold a meetup where 100+ B2B SaaS founders or sales and marketing heads come under one roof. We also have some experts coming in who have succeeded in the go-to-market space.

We have fireside chats and panel discussions, during which they provide insights and tips to these founders based on their firsthand experience about what works and what does not work for various aspects of go-to-market.

Inc42: What are the key areas B2B SaaS startups must tap into for scaling up? 

Sandeep Chawda: Well, there is no specific formula for this. Founders must draw upon their professional experiences and the domains they have worked in. In that way, they can readily identify the gaps, and their firsthand experience will help them come up with innovative solutions. The use of technology is a given in any solution, but the crucial aspect is finding the right solutions backed by their domain expertise. Founders must offer something highly differentiated, a quality we prioritise when evaluating potential investments.

Inc42: Do you have a specific target or plan for this year or the next? How do you see the Indian startup ecosystem growing?

Sandeep Chawda: We are witnessing early signs of progress, indicating light at the end of the tunnel. After the funding winter in 2022-2023, investments are beginning to pick up, transitioning from an artificially inflated market two years ago to a more cautious period when investors are hesitant, although the capital is available.

This hesitancy is gradually easing, and investors are starting to re-engage. This is an opportune moment for investors because founders’ expectations have become more realistic than two years ago. Earlier, they sought extraordinary valuations that were not always justified by their revenues or business plans. But now, founders are more grounded, creating a favourable environment.

We plan to make two investments per quarter in the next two years, steadily building our portfolio. Based on our current pipeline, the outlook appears highly positive.

[Edited by Sanghamitra Mandal]