Last fortnight, DarwinBox raised $72M and became a unicorn, continuing the momentum of unicorns in 2021 and becoming the first pure-play Indian HR tech company to do so.

League Of Extraordinary Gentlemen

Jayant Paleti’s and Rohit Chennamaneni’s friendship was meant to happen. 

Their academic careers followed a similar trajectory, with a high likelihood of crossing paths.

Both of them went on to become engineers and then both obtained an MBA from IIM Lucknow, albeit in different years. Jayant, as Rohit’s senior, had earned his respect from an early age for his wealth of multi-disciplinary knowledge.

Post their MBAs, Rohit went on to become a consultant while Jayant went on to work as a banker. Jayant met with Chaitanya Peddi at his job, who was working as a consultant focused on the Human Capital Management (HCM) practice after completing his MBA from XLRI.

Given Jayant’s and Rohit’s similar academic experiences and inclinations meant that from a young age they found themselves debating and brainstorming about products and how they could be used to solve problems at scale. 

They were always inspired to build a great product company out of India. 

Chaitanya shared a similar vision and his complementary skill set meant he completed the jigsaw when they decided to startup.

Given that all three of them were in client-facing roles, they were able to witness first-hand that enterprises were not satisfied with their HCM solutions and they lamented their lack of choice. They also recognized that people were the key to being able to maximize the potential of any organization.

As they studied the Human Capital Tech product landscape in India they found products focused on one or two key specifics of the HR’s job. What was lacking was a comprehensive, integrated product that could provide a one-stop solution to all the technical aspects of the HR department.

The three musketeers could smell the opportunity.

Engineering The Fittest

In August 2015, Darwinbox was born. 

The focus was to develop a system to maximize the value of a company’s most critical resource – its people. Their goal was to build an integrated HR platform across the employee lifecycle including recruiting, onboarding, engagement, performance evaluation, employee development, and payroll. 

While the motivation for business was HCM, it wasn’t the case for the company’s name. The motivation for the name of the organisation stemmed from the Charles Darwin quote that is today hung outside each of Darwinbox’s offices

‘It is not the strongest of the species that survives. Nor is the most intelligent. It is the one most adaptable to change.”

It is precisely this maxim that was laid to bear in the first couple of years at Darwinbox.

With their plans in place, they successfully raised seed funding in 2016.

Now backed with capital, the company started going about onboarding customers. But targeting enterprises was easier said than done. The team lacked credibility and enterprises refrained from partnering with the new kids on the block out of fear. 

While the larger enterprises liked the product and vision of Darwinbox, they were sceptical of swapping existing solutions for upstart solutions due to the perception of risk that is proposed. 

‘What if you guys shut down next year?’ was an oft-heard question. For the first two years, no traditional enterprise took a bet on Darwinbox. The rejection haunted the trio.

DarwinBox’s young team, however, was not the only one challenging the status quo. 

They would find the support they needed from a cohort of visionaries that were building the future of the Indian economy.

A Brave New World

2016 was the time when e-commerce upstarts were finding their time under the sun. 

These firms were experiencing increasing traction, expanding teams and raising large sums of money. True to their form they picked passion, product and nimbleness over experience and a track record. 

Besides none of the larger HCM incumbents like Oracle and SAP were targeting these companies. Darwinbox saw a shoo-in and started working with these technology upstarts.

For the first two years, 80 percent of the revenues came from internet startups. If it wasn’t for these upstarts, the Darwinian kid would probably never have evolved. 

What made Darwinbox better than its competitors was that it engaged and empowered employees while automating and simplifying all HR processes. Their complete premise was built on building a workflow that was intuitive - one that integrated across all facets of HR, ensuring higher usage and lesser learning time.

Their solution not only catered to operational/tactical workflows in the HR domain, but also helped companies engage their employees across multiple channels by understanding the cultural context of their customers’ employees. 

These are best evident from the organizational social network called ‘Vibe’ that allowed employees to engage with each other and comment anonymously. Another such feature was ‘Pulse’ – which operated like a mood board allowing employees to review their performance and rate how their day was going.

The HCM (human capital management) systems business is demanding, and it has been hard for vendors to keep up. The hierarchical design of employee systems was beginning to get in the way of frequent reorganizations, mergers, and agile operating models. 

The older platforms were not designed as employee-first applications, so custom journeys, configurable portals, and chatbots are all added on. Traditional HCM systems were designed to be configured by consultants, not HR people, so they were very hard to customize.

Most importantly HR technology budgets in India were limited, so vendors like Workday, Oracle, and SAP were less popular despite being present in the Indian market. 

Many companies had tended to build their own software as engineering talent was relatively inexpensive. This created the opportunity for India-specific cloud-based HRM platform providers like Darwinbox.

The contrast with traditional players couldn’t be starker.

We Are A Different Species

HR is culturally influenced. 

The ways in which different people understand hierarchy, engagement and performance vary across the world. This is where the Darwinbox product excelled.

Their product itself was was flexible, configurable, and able to manage any hierarchy, organization model, and workflow. Darwinbox led the charge in taking human capital management beyond the HR department to all employees with a highly user-friendly and configurable user experience

Against this backdrop Darwinbox successfully raised $4 million in a Series A in 2017.

Owing to its SaaS model, Darwinbox did not demand any large upfront costs/license fees or the need to invest in a costly IT infrastructure. They charged a subscription fee per employee/per month and functioned via a pay-as-you-go pricing model, offering flexible pricing based on the number of modules opted for, and the company size (number of employees).

While consumer tech was more about solving a problem for the masses, software tech was about solving customized problems differently amongst the masses. 

The conundrum arose from the need to create a Market for One, but for customers with increasingly different and customized needs. Darwinbox knew the landscape and worked towards a product that would prove to be modular and configurable from scratch.

Leveraging its product and pricing superiority Darwinbox on-boarded approximately 40 clients including names like Paytm, Delhivery, Swiggy and Godrej's CDPL (Creamline Dairy Products) with over 100,000 employees using its platform by 2018.

The market rewarded the early catch and Darwinbox raised $15M in Series B in 2019. 

Mutant Firms In A New Economy

India was undergoing a new shift from a goods-centric economy to a talent-centric economy. 

The importance of modern products that placed a high focus on talent along with business goals became paramount. 

The incumbents tried to navigate this scenario by consolidating with the challengers – Oracle’s acquisition of Taleo and Kenaxa’s acquisition by IBM illustrated the urgency to the modern stack. 

The core issue these mergers were unable to address was the inherent design of the legacy platforms that were trying to solve for multiple touchpoints, which continued to take a painstaking amount of time.

Darwinbox was agile from the get-go, identifying and solving numerous pain points in the value chain.

They worked with the customers and innovated rapidly. With a complete focus on customer needs, developer DNA and an accelerated speed of execution, Darwinbox focussed on building a full-suite solution that would solve the majority of the mission-critical needs of the customers.

Darwinbox meticulously executed on covering the entire HRTech landscape step by step, playing on natural ways to increase retention and touch global-level enterprise ACVs.

Not Your Average Descendant

Founders who have succeeded in building notable software businesses have known from day one that their gross margin is a core metric that needs to be kept healthy. 

Darwinbox’s decision to target the mid-large segment of the demand chain was tailored to accelerate this core metric.

If we take a step back to remember how SaaS companies evolved, we’d see that the early SaaS companies were born out of the sheer need for automation and reducing manual overheads.

Is India SaaS Ready to Soar?

SaaS companies eventually began targeting increasingly complex industry settings by trying to solve the deepest and most critical pain points to bring efficiency. 

ChargeBee in billing, Freshworks in CRM, Zenoti in Salons or Innovaccer in healthcare – all of these companies had one common denominator. 

That was a great understanding of how to build the perfect product out of their offerings while maintaining customizability, best suited to their customer needs.

If companies just focused on the latter, they would soon skid towards the path of just becoming a services company. Their goal would become to build extremely customized solutions for each customer, without having the capacity or channel to re-sell these solutions to new customers.

This was not only a deep gross margin hit but a classic path of turning away from SaaS.

Darwinbox’s founders were wary of this parallel path and meticulously chose the target customer segment. 

They would have the flexibility to customize for the needs of their customers, charge the right price for it and more importantly, carve a bigger market for the customized solution templates being created. This makes a solid SaaS gross margin and a health exemplified story.

But there were enough competitors, waiting to snap DarwinBox’s ascendant streak.

Survival Of The Fittest

The HRM sector is a highly crowded space. 

There are 200+ companies specializing across individual solutions such as performance management, payroll, and attendance. Darwinbox, on the other hand was a “Hire to retire HR tech product” used by an intern to the CEO of a company. 

Darwinbox's strategy to focus and go deep in the Asian market helped it differentiate itself in this crowded space. 

Once the shift to cloud technology intensified over the pandemic period, a future-ready product met the right market, and the company gained 180+ large enterprise customers, clocking a 200-300% revenue growth. 

In the earlier days, when no one was willing to back DarwinBox, internet startups were its first customers. Soon, it rode on the strength of a large client base to finally attract the big boys.

This is a classic path of disruption, which involves going after the lower end of the market and then rapidly climbing up. Razorpay, OYO, even Walmart, employed this strategy to success. 

By 2021, the company boasted of over 500+ Indian enterprise clientele, including established corporates such as Nivea, Kotak, Adani Wilmar, Dr Reddy's, Emcure, Tata Cliq, Bharti AXA, Mahindra Logistics, as well as startups including 30+ unicorns such as Myntra, Paytm, InMobi, Delhivery, Swiggy, and Bigbasket. 

Legacy players such as Oracle, SAP and Workday were all desktop-first products; each of them made a splash in mature tech markets (US, EU). 

However, in developing economies like India and South East Asia, ~40% of customers were projected to make use of HRM applications on their mobile devices, the proportion was even higher for field-employee intensive industries such as manufacturing, pharma and retail. Each of these fell under DarwinBox’s list of strong suits.

Gartner’s Magic Quadrant report acknowledged Darwinbox as one of the few HRM vendors that offered “a lighter-weight, 10MB mobile app for use in regions with low bandwidth, highlighting its market awareness and technical execution.” 

DarwinBox’s strength lay in being entrepreneurial and customer-focused. 

This might explain why a third of their customers today are those who previously used more established platforms by Oracle and SAP and Workday.

Endangering The Competition

Darwinbox’s strategy to go way beyond providing a simple HRMS suite proved to be successful. 

Innovation was underpinning the idea to build for making customers stick and keep adopting the flywheel. The holistic approach also lets customers use the same platform to buy easy add-ons, ranging from workforce management to talent acquisition to remote working suites. 

The key to accelerating growth however was multi-dimensional, with growth in solutions being one of the levers. 

Another important lever that Darwinbox explored was growth in its platform innovations itself. 

Constantly innovating to make the existing solutions reach ahead in the industry curve is Darwin’s motto. Darwinbox had been introducing multiple enhancements like mobile and WhatsApp functionality for the HRMS suite, facial recognition capability for the workforce management suite, and voice bots for the platform across the solution suite. 

Led by the high growth at the time when remote work became prominent with a majority of the enterprises adopting a hybrid model, the company had many firsts in the 2020-21 period. 

Darwinbox raised a $72Mn round in Jan 2022. The company had grown 200% since the last fundraise 12 months ago, becoming the first unicorn from Hyderabad. 

The company aims to use the fresh funds to drive its global expansion, accelerate platform innovation and ramp up its product, engineering, and customer success teams as it seeks to boost its presence in South Asia, Southeast Asia, as well as the Middle East and North Africa. 

The investors acknowledged that the strength of the team and product played important role in the investment decision. 

Darwinbox’s naming as the youngest and only Asian company to feature on Gartner's Magic Quadrant for Cloud HCM Suites 2021 was a testament to how far the team had come.

Evolving For A Better Future

DarwinBox’s India business, which contributes 75% to its revenue, is already profitable. 

It is expected to achieve profitability at the company level by 2025 backed by higher pricing power, economies of scale, and entry into developed geographies where customers have a higher willingness to pay for a great product. 

The company has 12 global offices with over 700 employees and is expecting to expand the headcount and its global presence rapidly, starting first in the MENA region. 

In Jan 2022, Darwinbox opened its new MENA regional office based in Dubai, and planning another GCC office in Saudi Arabia shortly. 

Continuing on its vision of building from Asia for the world while prioritising local compliance and context, Darwinbox is spending on its product development for the MENA region as it will be launching its Arabic mobile app later this year. 

It is aiming for a 400 per cent growth by the end of 2022. The company already supports leading global brands like Nivea, Starbucks, Sephora, Zara, and AXA, along with Lulu Group, Aramex, and Mobily Infotech in the region. 

With a revenue of $3M in 2021, expecting to rise to $12M by 2022, the company has raised at 100x forward revenue. As public market SaaS multiples correct to ~20x, it will eventually need to grow at least 3-4x to justify this revenue.

Geographic expansion will provide this glide path. 

Darwinbox aims to diversify its revenue from geographies. Going forward, it believes that India and Southeast Asia will contribute 35% each to its total revenues, with 20% coming from the Middle East and 10% coming from the US.  

Darwinbox has certainly developed a strong product culture. The product team is using its learnings from India and how companies manage large socio-cultural nuances to engage and retain employees, to grow exponentially outside India and build for the world. 

As the company grows further, it will need to ensure that it doesn’t become the monolith like the legacy players, and with innovation in its DNA and constant adaptation as its motto, this is unlikely to happen.

The visionary founders truly have fundamentally transformed the HRTech space with a highly resonant product.  

DarwinBox could transform Human Capital from India to the world.

Writers: Bhoomika, Ramandeep, Saniya, Varun and Aviral Design: Mehak, Omkar and Terry