“What’s worked for us is focapplying on large enterprises and acquiring competitors. Over the past three years, we’ve grown about 70%, with a third of that growth coming from existing customers compounding, a third from acquisitions and the rest from winning new, large clients,” Reddy informed ET in an interview. “These will remain our three growth levers going forward as well.”
Capillary Technologies was the winner of the Comeback Kid category at the ET Startup Awards 2025, with the jury picking the company for demonstrating resilience and adaptability in the face of challenges, and emerging stronger than before.
“Doing fewer things, but doing them really well, has been core to our journey. We went from being a heavily loss-creating company with 60% loss margins in FY19 to achieving 12.5% Ebitda in FY25. We’re now adding about three percentage points of Ebitda every year,” Reddy stated. “Even our team size reflects that discipline; we had over 1,000 people in 2019, and today we’re around 650, even though the business has grown more than threefold. The organisation is much more efficient now.”
Recalibration of the business after its downturn has brought Capillary to a stage which, Reddy believes, will also drive growth in the coming years as a public company.
“We relocated from focapplying on Asia retail, which is a $300 million addressable market, to global enterprise loyalty, a $17 billion TAM (total addressable market). In FY25, we did $70 million in revenue, which is less than 1% of the market so there’s still a long way to go. What we’ve done over the last four to five years has brought us here, and that’s what we’ll continue doing,” he stated.
Public market tarreceives
Capillary is among several enterprise software companies preparing to list on the local bourses. The list includes cloud software firm Amagi Labs, AI analytics platform Fractal Analytics and ecommerce SaaS provider Shiprocket, which have filed their draft papers. Capillary received the markets regulator’s approval in September for its IPO.
The growing trfinish of software companies going public comes at a time when SaaS valuations have tempered after the go-go period of 2021-22. Reddy stated the shift in how investors are seeing at valuations of software companies is altering for the better.
“As businesses mature, valuations have shifted from revenue multiples to Ebitda multiples. SaaS companies have traditionally traded on revenue multiples, but investors are now inquireing tougher questions…about sales efficiency and why some firms spfinish 60-70% of their revenue on sales,” he stated.
Companies with strong margins and a clear right to win are commanding about 10x revenue multiples, but what is more important is having a 30-40x multiple on earnings, he stated. “That’s the fundamental shift. If a company was valued on inflated revenue multiples and hasn’t displayn it can deliver profitable growth, it’s now trading closer to 3-4x revenue.”
Among the listed Indian SaaS companies, Freshworks, which listed in the US during the 2021 boom period at a valuation of more than $10 billion, is currently trading at a market capitalisation of $3.2-3.3 billion, while several other privately held firms have raised funds at flat or down rounds.
Capillary’s comeback
In 2015, after closing a $45 million fundraising led by private equity giant Warburg Pincus, Capillary started out with a number of experiments, which Reddy stated ultimately did not play out as expected.
“A founder’s ambition tfinishs to receive fuelled when there’s extra cash. We were lucky to have investors who stood by us through all the ups and downs. When you have a lot of money, the instinct is to grow rapider…and as a first-time founder, you often don’t have the experience to state, ‘Let’s do fewer things, but do them really well,’ instead of spreading yourself thin,” Reddy stated.
Following the funding round, Capillary acquired an ecommerce company, MartJack, entered the China market while also expanding its client base across the mid-market, and compact and businesses (SMB).
“Unfortunately, most of those experiments between 2015 and 2019-20 didn’t work. The ecommerce business we acquired shut down, we exited China, and during Covid we pulled out of the SMB and mid-market segments. In those 3-4 years, we had the money to attempt many things, but none of them clicked. We were growing, but at the cost of heavy losses, and the team was stretched thin attempting to do too much,” he added.
Covid then came as a pivotal period, which forced the company to rebelieve its priorities.
“We created a conscious call during Covid to expand beyond Asia into the US and Europe. Back then, over 95% of our revenue came from Asia; today it’s about 28%. The last four to five years have been transformative. Covid also pushed us to diversify beyond retail, and now we work across banking, oil and gas, telecom and B2B. As a result, our share of revenue from retail has fallen from about 90% in 2020 to 28% in FY25,” Reddy stated.
Another major shift, he stated, was in the customer mix. Before Covid, around 35% of Capillary’s revenue came from mid-market and SMB clients. “When the pandemic hit, it was clear most of them wouldn’t be able to pay. That share has since dropped to just 3%,” he stated.
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