Inside Fractal Analytics’ Early Bet on AI in Decision Making
FractalAnalytics’ journey to unicorn club spans two decades and multiple product realignments. Starting out as a SaaS (Software-as-a-Service) analytics company directing database queries to an AI-enabled SaaS solution for decision making, the startup has come a long way.
Based in Mumbai and New York, it has created some of its AI products such as Qure.ai and Theremin.ai, in addition to making multiple add-on acquisitions to bolster its offerings. More recently, Fractal Analytics acquired Neal Analytics to scale its AI offerings on Microsoft’s multi-cloud ecosystem.
Founded in 2000 by IIM Ahmedabad alumni Srikanth Velamakanni, Pranay Agrawal, Nirmal Palaparthi, Pradeep Suryanarayan and Ramakrishna Reddy, it was valued at over $1 billionearlier this year when it raised $360 million from private equity firm TPG Capital Asia.
Currently, only Srikanth and Pranay continue to lead the startup after the other co-founders left between 2007 and 2012.
Fractal’s Path to the Unicorn Club
Fractal operates in a space where competitors include Accenture, InstaDeep, McKinsey-owned QuantumBlack, among others.
Technology research and advisory firm Gartner estimates that the AI software market will be valued at $62 billion in 2022. This includes applications incorporating AI, as well as software used to create AI systems. .
Approaching Fractal’s current selling point, the global robotic process automation (RPA) and hyper automation market is expected to grow from $9.2 billion in 2022 to $26 billion, according to a MarketsandMarkets report. dollars in 2027 with a CAGR of 23.1%.
The report indicates that growth will be driven by three major technology segments: digital transformation with advanced techniques, growing demand for artificial intelligence and machine learning (AI/ML) and advanced analytics technologies, and growing demand for automated solutions for business continuity and planning.
This prepares Fractal Analytics for growth and capturing more market share. In a conversation with Your story, Srikanth Velamakanni, Co-Founder, Group CEO and Vice President of Fractal, says the company is ready for its public market debut as soon as the indicators are favorable, which will be part of its “100-year journey”.
He adds that over the coming year, Fractal will strive to bring data and algorithms to every customer decision, use cutting-edge artificial intelligence to automate and create self-learning systems and design for humans by integrating behavioral economics and design thinking.
YourStory (YS): How has Fractal evolved since 2000? Can you tell us about your journey to becoming an AI company?
Srikanth Velamakanni (SV): If I divide the industry into three distinct phases, before 2010 it was the cottage industry phase because we couldn’t do it on a large scale. From an algorithmic point of view, deep learning had not made much progress at the time. Around 2008-2009, research on deep learning made great strides, and in 2010 it was clear that a revolution had started when Mark Zuckerberg was seen attending an intelligence training program artificial intelligence and deep learning in Canada in 2011.
Between 2010 and 2015, there were significant investments in AI by big tech, including Google, Microsoft, Facebook, Amazon, Netflix, and others. Fractal began to see the first signs of industry expansion over time, and we built our first set of products into the AI world.
We made presentations to some boards and increased our investments, incubating Qure.ai and Crux Intelligence. We raised a few rounds between 2015 and 2020. And since the COVID-19 outbreak, the whole world has moved to AI and there’s been significant growth.
Inside Fractal Journey
YS: What were the challenges in moving from analytics to AI?
VS: It was a very fluid continuum as the underlying issues for a business remain unchanged. It’s just how you solve it and what’s possible that has changed. To do this, you need to invest nearly three to five years ahead of customer needs, and we have increased our research and development investment from 3-4% of sales to 12.5%.
Second, you need to hire people who are learning oriented as opposed to those who just have the right skills. So we started investing significantly in our learning and training programs within Fractal and started hiring people with that mindset. Those were the two big changes we had to make, but otherwise it was a relatively smooth journey.
YS: Can you tell us more about your client mix and in which geographical areas are they located?
VS: Consumer goods companies or FMCG companies make about 40% of our revenue. The second most exciting industry we serve is technology, then financial services, where Fractal has always had a stronghold. It is 40:20:20:20.
Also, when COVID-19 hit, health care took off and now it has leveled off. Across all industries, there is a push towards digitization and digital transformation.
In terms of revenue, we were at $174 million or about Rs 1,295 crore last year (FY2022). This year and just March 2022, we were already seeing an execution rate of Rs 2,000 crore ($256.34 million).
Nearly 70% of this amount comes from the United States, 20% from Europe and the remaining 10% from APAC (Asia-Pacific). As the United States continues to grow, we see that Europe and APAC will grow faster than the United States.
YS: How is customer churn changing and what is the average metric?
VS: We work with nearly 140 clients and they are all clients with over $10 billion in revenue. When targeting customers, we follow the 10-20-30 rule: they should have either $10 billion in revenue, $20 billion in market capitalization, or 30 million customers.
Customer churn has certainly gone down and our net dollar retention rate is at a healthy 128% for existing customers.
YS: There has been talk about your public market debut for a while. Is there a timeline?
VS: We could have gone public when we reached the $100 million ARR (Annual Recurring Revenue) scale. We just didn’t and when the pandemic hit we initially thought it might have a negative influence on Fractal’s revenue and we were concerned that any ensuing recession would mean a reduction in expenses. .
So we’ve been very busy trying to build Fractal for the long term and keeping our heads down to build this business for the future. It wasn’t until late 2021 that we realized we had reached a level where we could have gone public.
There are a lot of goods and some pains in being a public company, but overall it creates stakeholder-centric capitalism. Stakeholder orientation is helpful and compatible with building a long-term business.
We see this as a 100 year journey, so going public is in keeping with that mindset. If the markets are permissive, it’s just a matter of timing and alignment.