vSaaS
Vertical SaaS is the future.
It’s actually happening all around you, right now, just siloed.
You’re unaware of it, unless it’s happening in your industry and you’ve been impacted directly.
Examples?
Take Slice, a company that focuses on supporting mom-and-pop pizza shops, that just crossed over 100M in revenue.
Or Doximity, dubbed the LinkedIn for Doctors, that was founded just over 10 years ago, and just surpassed 450M in ARR.
You could talk to Todd Saunders, who is building a carpet behemoth in Broadlume, a vSaaS, all-in-one marketing and management platform for flooring retailers.
For all of the hype surrounding jobs/tech relocating to Miami, Kaseya is still the largest employer. Kaseya is a company you likely haven’t heard of prior to them taking over naming rights of the basketball arena, because they provide software exclusively for Managed Service Providers.
Lastly, listen to this fantastic breakdown of Constellation Software, and its completely under-the-radar founder and operator Mark Leonard. Mark has focused on acquiring vSaaS companies since its inception in 1995. Constellation’s market cap is 56.86B at the moment and the ticker speaks for itself.
A lot of the top investing minds recommend reading Mark’s annual shareholder letters alongside Bezos and Buffet.
Fractal Software puts together a list of the vSaaS publicly traded companies, available here for reference.
Starting to get the picture? Vertical industry-focused software companies (vSaaS) are sneaky massive…
Why haven't you heard of these businesses or operators?
They're not seeking national headlines
They don't operate in your industry
They're B2B (so not consumer based)
They are obsessed with solving/dominating a specific, industry issue (and then expanding to other issues). Think of this as the unsexy approach to the software industry. These companies are not putting AI or Web3 in their mission statements, they're optimizing an old, shitty process in a massive industry that will reward them handsomely for improving it.
Not the sexiest or flashiest businesses out there, but unicorns (or on their way) nonetheless!
Late last year, Bill Gurly was quoted in an interview with McKinsey:
I totally agree, especially in the vSaaS space for the following reasons highlighted by Bain Capital Ventures:
Digitization Knock-on Effects– While many industries saw an increase in a tech-savvy buyer, engagement with end users was not as consistent. Today, however, workers are rapidly becoming more comfortable in a digital world and at a greater pace than ever before. COVID was a forcing mechanism for many workers to incorporate technology into their lives in new ways – both inside and outside the context of their work. Now even the most manual-process-heavy industries are staffed by workers who are more comfortable with digitization – and therefore more likely to adopt new software at work – than they would have been just three years ago. Regulatory drivers have also accelerated this adoption within industries, such as the Electronic Logging Devices mandate (2017) and the Inflation Reduction Act (2022).
More Millennial Buyers– As Millennials continue to become a greater proportion of business decision-makers, demand for digitization at work will further increase. New buyers will seek solutions that are tailored to their preferences, and digitally native generations are likely to make business choices that reflect this demographic shift.
Foundational Technologies Have Improved– Cloud and mobile helped transform vertical SaaS offerings; they helped transition workflows from pen and paper but beyond that, they were able to support end users in the field and offer more collaborative experiences. Today, startups are leveraging technologies in a similar manner. They build their software on a foundation of newer capabilities that were not readily available to the first wave of Vertical SaaS giants, such as embedded fintech, automated marketing, generative AI, and even basic API improvements. Companies like Plaid, Twilio, and Open AI make it easier for new players to deliver more robust products and services without building everything in-house. Specialized software can more closely resemble a ‘one-stop-shop’ than ever before, streamlining the end-user experience and building loyalty.
Vertically integrated SaaS products (by industry) are in a perfect position to capitalize on these trends.
It's only going to continue to pick up velocity.
What a time to be alive (and BUILDING)!