Freshworks valued at over $12bn on IPO - opportunity lies in its expanding platform

By Derek du Preez

September 23, 2021

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Freshworks was valued at over $12 billion yesterday in its Nasdaq debut, as shares rallied at 30% above the initial offering price. Often cited as a competitor to Salesforce, Freshworks has a growing product portfolio that is resonating with buyers that are looking to meet the changing demands of both employees and customers, which have been amplified during the COVID-19 pandemic. 

In an interview with diginomica, Freshworks CMO Stacey Epstein said that the company also has a ‘greenfield opportunity' in the mid-market to disrupt in areas beyond CRM - including ITSM and HR - enabled by its Neo platform. This is where the growth will come for Freshworks…in the platform. 

Freshworks is the first India-based SaaS B2B company to IPO in the US and has listed on the Nasdaq under the symbol ‘FRSH', with an initial price offering of $36.00 per share. Shares finished their first day of trading up 32% at $47.55. Epstein said: 

Freshworks has been doing this for over a decade. I certainly think this is a great time for us. We have over 52,000 customers now, generating over $300 million in revenue, and so the metrics and the numbers and the predictability of our business is all in place. And I think that the markets are in a good position, so all the right factors lined up for us to enter the public markets today.

Over the last 12 months, Freshworks has seen 49% year-over-year growth. It now has 4,300 employees across 16 countries and has 52,500 customers in 120 countries, including American Express, Discover, Bridgestone, Delivery Hero and Klarna. Freshworks states that its total addressable market is worth approximately $120 billion. Epstein added: 

We're growing at a nice clip and I also think it's important to note that we're doing it in a very efficient way. If you read into the numbers, we've been hovering near cash flow positive and profitability, which for a company at our scale and at our growth rate is a pretty impressive feat. And I think that's our focus going forward, is continuing to drive growth, but do it responsibly, and maintain that efficiency that we've been able to achieve as a company.

Changing perspectives

Freshworks' debut on the US stock market may also go some way to change the somewhat misguided international perception of India-based technology companies as purely outsourcing outfits. Founder and CEO Girish Mathrubootham has also taken this upon himself and invested in a venture capital fund, the Together Fund, to support product-led SaaS entrepreneurs based in India. 

Today there are nearly 1,000 Indian SaaS companies, generating about $3 billion in revenue and employing nearly 40,000 people. India has already seen a successful consumer tech IPO wave (with the likes of Zomato, Delhivery, Paymt) and Freshworks could well be paving the way for a number of B2B SaaS companies. Commenting on trend, Epstein said: 

In our earlier days I think people just assumed we were an outsourced service. And then when we said no, we deliver a SaaS product, we help companies delight their employees and customers. 

Also, it's built in India, but our first six customers came from four different continents, so it was global from day one. And I think that's one of the advantages that is different from your traditional Silicon Valley built company. So yeah, to have a product-led SaaS company coming out of India, and other countries too, it shows that this is something that can be done across the globe.

I think day's like today can only inspire all these future innovators and entrepreneurs to know that they can fulfil the dream that Girish fulfilled today. India's very proud of him. But I think a lot of future innovators are seeing themselves in his shoes, in the future, which is great.

A platform for growth

Freshworks' IPO comes at a time when buyers are having to invest heavily in both employee and customer experience. The COVID-19 pandemic shone a light on a myriad of broken processes within organizations, both externally and internally, and there is renewed emphasis on changing the way work is done, to improve service. 

This more often than not requires new investment and Freshworks is looking to capitalize on that opportunity, as it expands its product suite across its Neo platform. Epstein said: 

What we're learning from buyers is that very early on in the pandemic people were willing to give their service provider a break. I think we were all in an unknown world where we were reacting to new conditions. But over time, as the economy has come back, and more and more brick and mortar stores are open, people have become less patient with their vendors. 

And when they want service, if they want to make a return, or they want to buy something, they want to do it quickly and they expect something modern, technology-first and very intuitive. Continuing to meet the increasing demands of consumers is incredibly important for technology vendors.

Epstein has a long history in the world of enterprise service, having previously worked at both Zinc and ServiceMax, and she points to the opportunity Freshworks has in enterprise-wide service management. Whilst many people point to Freshworks as a Salesforce CRM competitor, it's scope is now much broader than that and it is already competing in the fields of ITSM too. She explained: 

We're seeing really strong demand for IT Service Management products. People love to compare us to Salesforce, but the truth is we're disrupting more than just the CRM space. I mean we're really taking on ServiceNow. I think ServiceNow is more focused on the very large customer and selling to the C-suite, they say it themselves - their goal is to get inside the C-suite of the Fortune 500. That's not what we're about. 

We're about the 500 million companies, we're about companies of all sizes. It's just a really huge greenfield opportunity. 

But it's easy to see where Freshworks is headed. Much like ServiceNow and Salesforce, the name of the game is the platform and building a suite of products that touches all corners of the enterprise. It clearly believes that it has an opportunity to offer mid-market companies an alternative platform that touches all areas of the business - extending to both employees and customers. For instance, it also has an incubator product, Freshteam, which is focused on HR management. Epstein said: 

We are built on our Neo platform, which serves as the foundation for all of our products, and I think a lot of times people don't think of CRM and ITSM as being something that should be on one platform, because it's a different constituent that you're meeting the demands of. 

But the truth is, if you're focused on the user and what the user needs to do, the user needs to quickly be able to respond to service inquiries, sales inquiries, those best practices and workflows in an organisation - they aren't that different. 

And to be able to have your internal team learn one system and go live quickly, all those same values and benefits apply. Why not have all of that on one consistent platform? 

My take

I'm sure there were plenty of celebrations at Freshworks HQ this week, as the IPO has proven to be a resounding success for the company. The move will do well to raise the brand's awareness in the market and it's clear that investors see opportunity in the company's platform. But as the dust settles, what matters is execution and investment in the product. 

The mid-market is facing many of the same challenges as Fortune 500 companies, but are sometimes priced out by the larger vendors that are focused on securing those bigger budgets - and as a result are seeking alternatives. Freshworks has an avid user base that is incredibly enthusiastic about its core product. Bringing in expertise to expand that beyond CRM, as it's doing with ITSM, will be key. We will be watching closely as it looks to tackle HR down the line. It's the platform play that is most interesting here and in the coming months Freshworks needs to shout about that.