Indian SaaS startup Capillary Technologies grabs $45M to expand globally

Capillary Technologies, an Indian SaaS startup that offers solutions for loyalty management and customer engagement, has raised $45 million in a funding round, as it plans to expand into global markets and widen its reach through mergers and acquisitions. The funding arrives at a crucial time amidst the prevailing market slowdown, where startups, particularly those at the late stage, are facing a capital crunch.

Capillary’s Series D funding round was led by Avataar Ventures and its LPs Pantheon, 57Stars and Unigestion. It also saw participation from Filter Capital and Innoven Capital. The round comprises $40 million in equity and about $5–$7 million in debt. With the latest capital injection, the startup has raised nearly $150 million in capital to date.

Founded in 2012, Capillary Technologies initially focused on the retail vertical in India and Southeast Asia. In recent years, it has broadened its offerings and launched in more markets including the Middle East and South Africa, and since early 2021, the U.S.

Capillary is carving a distinctive niche in the market with its emphasis on gamification to bolster customer loyalty, a strategy it says it has been able to deploy across commerce, retail, aviation and hospitality sectors.

The Bengaluru-based startup’s suite of technology-driven, cloud-native solutions has helped it attract a number of clients. Already, it has collaborated with over 250 brands across 30 countries, powering more than 100 loyalty programs. High-profile clients include Domino’s, Tata Group, Puma, Shell, Petron and Marks & Spencers. Capillary’s tech reaches over a billion customers and clocks over 5 billion transactions annually.

“The way most of our competitors in the U.S. and elsewhere have built in as like a services business where customers ask you something, and you build it. On the other hand, we have taken a very product view to it,” Capillary Technologies founder and managing director Aneesh Reddy said in an interview.

Just over a couple of years after entering the U.S. and acquiring the customer experience startup Persuade, Capillary’s business has grown by 3.5x, the startup said, without disclosing specific numbers. It also says the U.S. now accounts for more than a third of its revenues.

The startup has made five acquisitions in the U.S., with the last one of Texas-based loyalty solutions provider Brierley from Nomura announced in April this year. These acquisitions have helped it to introduce solutions to clients operating in wider verticals.

Reddy told TechCrunch that Capillary is seeking to leverage the fresh funding to expand its presence in the U.S. and Europe through actively pursuing strategic acquisitions, as part of its growth strategy.

“The core business is profitable and growing by itself, so most of the funding is going to be used for acquisitions,” he said. “As you would guess, if you have the money, this is a great time to buy.”

In late 2021, Capillary Technologies filed its draft papers to go public in India. The startup has, though, delayed that plan due to the ongoing market slowdown. Reddy said the idea of filing an IPO in India is still being considered and he may executive that within the next three years.

“The good piece of Capillary is it’s profitable. With this fundraise, we have a lot of excess cash also on the balance sheet. So, it’s not like I have a gun to my head to list,” he said.

Capillary has a headcount of over 750 people, including 200 contractors, and has offices in Dubai, Indonesia, Malaysia, and Singapore, apart from India and the U.S. It counts Sequoia Capital and Warburg Pincus among its existing backers.

“It has been truly remarkable witnessing Capillary’s business transformation over the past four years,” said Mohan Kumar, Managing Partner at Avataar Ventures, in a statement.

“The strategic decision to diversify from Asia into the US and Europe, encompassing various consumer verticals beyond retail, has been nothing short of impressive. This move has catapulted Capillary into a leadership position in Loyalty software and this has been recognized by external mentions like the Forrester Wave. Given the expanded addressable market and the immense potential that lies ahead, Avataar is wholeheartedly committed to supporting Capillary in its pursuit to become a global market leader.”