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Tax challenges being faced by the(SPI)Software Product Industry and Budget Recommendations made by iSPIRT.

With the budget closing in on the industry there are hectic conversations to represent the Software Product Industry in the right manner in the Ministry of Finance. The tax issues both on the Indirect Tax and Direct Tax have been plaguing the Industry for a long time and this hangout addresses the things which need to be done very well. The Indepth Knowledge of  Bharat Goenka (Tally Solutions) and the  moderation done by Sumeet Kapur(Employwise) leads to an in-depth conversation on the Tax issues.

Bharat divides the two issues into, First, the Direct Tax about TDS the why and when it should be applied along with Industry perspective, the second issue was Indirect Tax – the confusion around excise and service tax relating to products and its definition and applicability of VAT .

It becomes important to introduce the Constitutional Framework under Indirect taxes which broadly talks about Manufacturing and Services being taxed by the centre and anything that is traded is taxed by state.

Confusion arises around “Service” and “Right to Service”. Whereas “service” is not tradable a “Right to Service” when sold is a tradable e.g. a Mobile phone service being provided by a Telco is a service where as when a vendor sells a recharge coupon he is selling “Right to Service” that actually will be provided by the said Telco.

Hence, under this concept of “Right to Service” tends to be tradable until the service is rendered and not after it is consumed, because the title to right to service is nor more existing after consumption. Service is therefore treated as tradable commodity thus qualifying for VAT in states and the Center charging service tax, this leads to invoicing for both VAT and Service tax on a software product.

What is needed is clarity on the issue of tradability of service as “goods” and “service delivery” as “service”.

GST will bring in changes but the taxes will be shared between states and center. GST it self may not fully solve the problem of duality of tax on software products. The problem of duality on VAT and service shall be sorted out only when there is clarity on “Right to Service” as a tradable commodity and “service” is achieved.

We as an Industry need to help Government formulate a distinction between “Service” and “Right to Service” as a tradable, so as to do away the duplicity of VAT and Service Tax so that service tax is charged only on part of service and VAT only on tradable value added portion if and when a service is traded further by channel partners of the service provider.

Direct Taxes (TDS)

Sumeet introduced an issue on TDS. Primarily a TDS made by payers to software company leaves less cash on the money collected. This is mainly for software product which sold leaves the product company with 10% less cash on the money collected.

Bharat mentioned that Software despite being a tradable product is the only product that is subject to TDS. This creates a bigger problem for the young companies and growing industry as early years do not allow you the sufficiency of profits.

We need to bring in front of Industry that no trading activity should attract TDS. Also that by doing away TDS the Government is allowing the profitability and business growth thereby allowing more business to happen and widening the tax base eventually.

Sumeet was of the view that, if software product companies are being subject to a TDS there should be Tax credits available on service tax so that the cash availability to businesses can be balanced.

Bharat added yes we can represent to the Government on this that either give me an input credit or refund TDS on day I file my return. Sumeet added that refund must be done even if there is a scrutiny.

Pramod from Nucleus Software added that in an event the question of Duplicity of VAT and service tax was raised to the Revenue Secretary, who showed his inability to do away with duplicity on tax as VAT is a state subject.

Conclusion

Many of the changes in law have come in past few decades and there was a lack in taking the cause to Government or lack of sufficient clarity in helping Government to clearly define distinction between Goods and Services and to separate out Right to Service being traded verses Services.

Bharat Concluded by saying, in the present efforts done to represent to government, we are looking at adequacy of clarity and this clarity is much needed even if the GST is coming to solve the issues and problem in this regard.

The detailed budget recommendations can be seen here.

With Inputs from Sudhir Singh, ExcelICT

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This Fourth Wave of Indian Enterprise Software Startups is World-Class

India’s enterprise software industry has been slowly bubbling since the 1980s but has generally failed to deliver a large number of high impact, high value companies.  We do have some companies that everybody talks about – iFlex, Tally, Zoho – but these are far and few between. I believe that we are seeing a new scalable wave of enterprise software companies coming out of India and there is a potential to deliver several high impact companies over the next decade.  Here at Lightspeed Venture Partners, leveraging our global strength in enterprise technologies, we see opportunities to partner with companies that are cloud-native and have cracked a global market – examples of current active categories in India are CRM, analytics/big data, marketing automation and infrastructure.

India’s enterprise software industry has to be looked at separately from the outsourcing/BPO firms like Genpact, Cognizant, Tata Consulting Services and Infosys.  Starting in the 1980s and early 1990s, this services industry is now mature and at scale.

Separate from the outsourcing/BPO industry, India’s enterprise software industry (or “products” as it is called by many here in India) has evolved from the 1980s to now in what I think can be divided into four waves, coinciding somewhat with three trends: 1) enterprise software moving from desktop to client-server to cloud; 2) evolution of Indian industry post 1991 liberalization; and 3) increased experience of Indians at successful US product companies.

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WAVE 1

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The first wave of software products came along in the late 1980s/early 1990s – the focus was desktop products for business accounting.  Companies in this wave include Tally Solutions (still the undisputed leader in SME accounting software in India), Instaplan, Muneemji and Easy Accounting.

WAVE 2

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This generation of software products emerged in the 1990s as projects within outsourcing firms or from internal services arms of larger corporates. Infosys launched Finacle. Ramco Systems launched its ERP. And Citibank launched CITIL which became i-Flex.  Other notable companies included 3i Infotech, Cranes Software, Kale Consultants, Newgen Software, Polaris Financial Technologies,Srishti Software and Subex.

I remember attending CEBIT in Hanover in 1989 when many of these Indian software and consulting companies were first introduced to Europe.

The late 1990s saw a wavelet of ASP (application service provider) startups in India, most of which got crushed after the dotcom bust.

WAVE 3

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The 2000s saw on-premise India-first companies such as Drishti-Soft, Eka Software, Employwise, iCreate Software, iViz, Manthan Systems, Quick Heal Technologies, Talisma (for which I did some initial product management work while at Aditi Technologies) and Zycus get started.  This was the era of 8-10% GDP growth in India which lasted till about 2010.  Many of these companies had a direct sales model. After India, they generally expanded into the global South (Africa, Middle East, SE Asia, Latin America) where they found similar customer requirements and little competition from Western software companies.  Bootstrapped in their earlier years, some of these companies grew over several years and have broken through to $25 million+ in annual revenue.  Key verticals have traditionally been BFSI (banking, financial services and insurance), telecom, retail/FMCG (fast-moving consumer goods aka CPG in the US) and outsourcing/BPO.

Having been around for over a decade, some of these companies generally face the challenge of migrating to the cloud, upgrading user experience to modern Web 2.0 levels, and expanding addressable markets beyond the global South to the US and Europe.  We have seen some of these companies get venture funded, typically at much later stages in their go-to-market relative to US-based software companies.  Several of these companies have received funding in the past couple of years, ostensibly to “go international” and “go cloud,” not an easy task, especially when done together.

WAVE 4

Starting in around 2010, a new wave of cloud-native companies were launched, perhaps following the slowdown in India’s economy and the growth/acceptance of SaaS as a delivery model and as a sales model in the US.  These companies have grown and now could power beyond the $10M/year revenue glass ceiling.  The reason for the scale potential being higher for this cloud-native wave is the cracking of efficient online sales channels to reach markets globally.

Why this decade? Because there is an increased willingness of companies around the world to search for and buy software products online.  There is now a large pool of founders who have worked at global enterprise product companies (e.g. Indian offshore development centers or in Silicon Valley itself with companies like SAP, Oracle, Google, Microsoft, Adobe) and have experience in product management, marketing and sales.  And finally, there has been a dramatic reduction in the capital required to bootstrap enterprise software companies.  Everybody uses AWS and software from other startups to get started. It’s quite meta.

Wave 4 companies have the opportunity to break through the barriers that previously relegated Indian enterprise software companies to selling to the global South. We have seen Atlassian (Australia), Zendesk (Denmark) and Outbrain (Israel) do this move to Western or global markets.  Zoho is an Indian company that is rumored to be at $100 million per year revenue scale – they have been part of many of the waves I have described.

This cloud-native wave, I believe, can be divided into two dimensions. One dimension is the platform/tools companies versus workflow automation (applications) companies. The other dimension is India-first companies versus the global-first companies.  We see opportunities in all four quadrants, each having its own challenges.  We are interested in looking at companies in all these segments, with a bias toward companies which have reached some scale ($1M ARR) and are going after large addressable markets with aggressive sales & marketing execution.

Fourth Wave

 [Please note this is not a comprehensive list of companies nor a view on which companies we admire or not]

Global-first companies coming out of India have started to crack or have cracked the online sales model, using SEO, SEM, content marketing and telesales.  They are typically going after mature segments where buyers are typing keywords into Google at a high rate. This online selling model results in an SMB and mid-market customer base.  In many cases, founders may have to move to the US to enterprise sales.  It’s worth noting that scale markets are not necessarily all in the US – companies could get built with a general global diffusion of customers, perhaps with help from resellers.

I see India-first companies typically going after newer high-growth companies in India (e.g. ecommerce, retail) and startups.  Some go after Indian arms of multinationals (MNCs).  This is a reasonable early adopter market to cut a product’s teeth on, but has limited ability to scale.  Of the newer crop of India-first companies, very few go after large enterprises in India – there are exceptions like Peelworks and Wooqer.  The model here generally is SaaS as a delivery model but not SaaS as a sales model (ie direct sales, not self-service).  Many software companies are essentially verticalized.

We continue to see a few high-ticket, high touch direct sales enterprise software companies which are global-first, including companies like Cloudbyte, Druva,Indix, Sirion Labs and Vaultize. Many of these start out with teams in both Silicon Valley and India or transplant themselves to the Valley over time.  I think this will continue to happen but we will not see the explosion here that we are seeing in the number of companies utilizing low touch online sales models.  I see several high-impact companies coming out of these direct sales enterprise software startups as well.

I think this dichotomy between India-first and global-first companies is interesting and makes India a distinctly different type of investment geography, different from Israel (which has very small domestic market where tech companies move to the US very quickly), different from China (which mostly has domestic market focused startups and very little enterprise software) and different from the US (which is primarily domestic-focused in $500B enterprise tech industry in the early years of most startups). In terms of investor and founder interest, the pendulum may also swing back and forth between these two models as the Indian economy grows, sometimes at high speed, sometimes at a snails pace.

[With input from the team at iSPIRT and several of the companies mentioned above].

Reblogged from YourStory & LightSpeed Venture Partners blog.

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SaaS #MadeinIndia Products – HR & Recruitment

This post and the one’s following this are attempts to improve the coverage and knowledge of Indian made Product companies who are solving issues with their SaaS type solutions. This is not a comprehensive list, and if there are some companies whom we have missed and should be in this list, please feel free to email us or drop in a comment and we will add it to the list, this hopefully will turn into a Crowd Sourced list of companies in the HR & Recruitment space.
Some of the HR & Recruitment based Products with a SaaS twist and the #madeinindia component in an alphabetical order:
1. Adrenalin – Adrenalin is a business-critical Human Resource Software. It provides critical tools such as HR software solution, payroll software solution, HRMS software solution, performance management system, attendance and training management software solutions.
2. Ascent Payroll – Employee Self service, Payroll Software.
3. Cynergis – HR Outsourcing, Payroll & HRMS software which has been around for over 10 years, and also has a major SaaS play involved.
4. Employwise – HR software for integrated employee life-cycle management delivered as SaaS.
5. Emportant – Emportant.com provides Internet based HR and Payroll Management software. Based on cloud technologies, it provides highly reliable and worry free software environment that you can just use without any other software management overheads.
6. EmpXtrack – EmpXtrack is a software product of Saigun Technologies Pvt. Ltd.. The company has been focused on HR solutions for the last 10 years and is a CMMI Level 3 company implementing best software development practices since inception.
7. Fluous – PowerApps – Adaptive HR Systems is the premier HRMS solution being by both large and growing organisations.
8. Greytip – Greytip Software is a leading HR & Payroll software solutions company. They offer a wide range of HR solutions (from on-boarding to exit) for customers big and small across industry verticals.
9. Hackerearth – Help you hire programmers for your companies.
10. HireCraft – Talent Management is a tool to help you manage all your employees and talent via this product suite by HireCraft.
11. Hire Rabbit – HireRabbit helps you design a beautiful career site on facebook, boost your referral recruitment, automate manual social recruiting activities, and provide metrics that matter!
12. HR Mantra – HR Mantra provides SaaS based Employee Self Service, HRIS, HR & Payroll Software on the Cloud.
13. Jombay – the smartest way to find jobs in India on the next generation job portal.
14. KServeHRMS is a flagship product with of Kallos. The HRMS product is known for its unique employee self service centric model for integrated HRMS software
15. MinervaHR Suite – A product from TenXLabs designed to house all information pertaining to every employee in an association from Recruitment to Retirals.
16. Mettl – Mettl is an online assessment and testing platform to measure, analyze and improve people skills. It is ideal for companies who want to run multi-competency assessments for their prospective hires or existing employees. We focus deeply on the science of assessments and combine it with advanced technology to deliver highly valid and reliable tests.
17. PeopleWorks –  A flexible, robust, customizable, and seamless cloud based solution for efficient management of the HR lifecycle of every employee in the organization.
18. Recruiterbox – Recruiterbox is the easiest way to receive and manage job applications to your company. It is more efficient than email and simpler than any other recruitment software. They are Bangalore based, but have been getting great traction outside and within India for their product.
19. Saral Paypack – Payroll Software for managing all your employees in one place, SaaS based web platform.
20. Shawman Software – From recruitment to retirement, the entire gamut of managing human capital is supported by HRMS.
21. SumHR – SumHR is a HRMS product, automating all HR requirements with a Free Employee & Leave Management system product integrated as well.
22. Synergita – Software for the people, performance management and continuous feedback.
23. Talentpool – Talentpool is a recruitment software for HR Departments of companies. It helps them streamline their recruitment processes, meet hiring targets and get instant reports to track performance.
24. Valuehire – A complete workflow automation solution for recruitment agencies and
companies of all sizes.
As mentioned, if (and we must have) we have missed out on some companies, either yours or another you know of, and would like it to be added to the list, please comment below here, or email us.
Our Goal is to create a great compilation of SaaS Product companies made out of India and hopefully get more businesses to try using these products as well compared to other counter-parts.
The next list of SaaS Product companies made from India, will have special focus on Social Media Tools. Watch out for that in a few days.
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EmployWise: Improving the ROI in employee lifecycle management

Effective employee lifecycle management is acquiring importance from a talent acquisition and retention perspective; from an employee satisfaction angle; as well as from a compliance and regulatory viewpoint. Many organizations, especially SMEs, are discovering to their dismay that the pile of unstructured employee data they have accumulated is a ticking time bomb. They suspect they are paying a price for poor record maintenance and employee management, but are not sure of the exact cost, or its implications.

The impact of poor employee lifecycle management could vary, but often includes an inability to quickly sift through granular employee records and performance metrics with any degree of confidence. This leaves organizations open to violation of immigration norms, wrongful termination charges, industry and local jurisdiction compliance penalties, productivity loss, fraud through inaccurate claims, growing recruitment costs, loss of assets and brand reputation through poor separation processes, etc. The problems become complex when the business grows from single proprietor to multi-unit operators across geographies.

But what’s an SME to do? Human resource management takes years to be codified. Processes around HR management (compensation and benefits, leave, attendance, travel, expenses, reimbursement, performance, hiring, learning and development, separation) and workflow can have gaps and leakages for years without being noticed. Replicating them across units with any degree of accuracy and consistency is a frustratingly uphill mission.

The problem is so large that it has drawn a number of entrepreneurs to try and solve it using technology and automation. With newer business models such as SaaS, pay-as-you-go technologies like cloud and anywhere-anytime access over mobile channels, the solutions are not only looking good, but are increasingly becoming affordable.

Which presents the single biggest problem to entrepreneurs trying to solve the problem: what’s the differentiator? Why should an organization opt for Solution A over Solution B, C, D….Z?

Sumeet Kapur, CEO of EmployWise an employee lifecycle management solution, took the long route to the answer. “Human relationships are very different from handling materials,” says Kapur, “People have names, not product codes. Human beings have memories and you have to treat each one as a segment of one.” EmployWise took this core philosophy and engineered it into their product. An early version of the product was launched in 2004 as Kapur and his team realized that India was turning into a service economy and employee lifecycle management would gain increasing attention. By 2008 EmployWise was officially launched. Today, the 9 modules of the product appear easy to use, can be integrated with existing HR management technologies (SAP, PeopleSoft etc) and giving instant access to best practices in a hosted pay-per-use-per-employee-per-module SaaS model.

At the moment EmployWise uses SMS to stay mobile, making it unnecessary to deploy fancy smart phone apps. In an Indian context, especially in relation to SMEs, this may appear to be a wise strategy – but one that is unlikely to remain a strength for long. Smart phone costs are coming down and SMEs have very compelling reasons to opt for mobile technologies. Mobile banking, communication, inventory management, sales tools, even mobile credit card payments etc are becoming affordable for SMEs over smart phones. Why would they want to remain with clunky SMS for HR? EmployWise must address this quickly if they are to remain relevant in a scenario where smart phones are already dominating.

The advantages of software products such as EmployWise extend to the ability to have one source of truth, they obviate the need for secondary data entry for analysis, empower employees through a self-service model, reduce the HR : employee ration to as much as 1 : 400 and allow companies to benchmark practices with those of their peer group. The last really depends on the density of customers EmployWise has within any given industry. At the moment, the company has 75+ customers – many from technology — and handles 32,000 employee records. The number is adequate to provide reasonable insights, especially in the technology sector where 40 to 60 per cent of the investment is in people – and where managing them well can produce quick ROI.