What the lockdown did to small software companies

On 24 March, India went into a national lockdown. For a few weeks, almost every small business in the country stopped. The software companies that serve them felt it immediately.

Two groups

By May it was clear the lockdown had split small business software into two groups.

The first group sold tools for running a shop that customers visit: billing counters, footfall tracking, in store inventory. When the shops closed, those customers stopped paying. Some of these companies lost a large share of their revenue in a month.

The second group sold tools that help a business sell and get paid without a physical counter: online catalogues, WhatsApp ordering, payment links, invoicing and collections. Demand for these went up, not down. A shop that couldn’t open its shutter could still take orders on a phone and collect money over UPI.

UPI tells the story. In October it processed more than 2 billion transactions in a single month for the first time. A large part of that growth came from small merchants who had never accepted digital payments before this year.

What it means for buyers

For the first few months, nobody knew how long this would last, and almost every buyer stopped. We did too. It made no sense to value a company when its customers might not survive the quarter.

By the second half of the year the picture got clearer, and our thinking changed in two ways.

First, the companies in the second group are worth more than they were a year ago. Their customers have changed how they work, and most won’t go back. We’re willing to pay for that.

Second, some companies in the first group are still good businesses. They’ll recover more slowly, and their founders are under real pressure. Some of them can be combined with tools from the second group, so a shop gets one system that works at the counter and online.

Where this points

The thread running through all of this is money. The products that did best this year help small businesses collect payments, send invoices, and manage the cash coming in. That’s where we expect to spend more of our time.

We hope you and your families stayed safe this year. Happy Diwali.