#097: The LeagueApps Story & Their BIG TIME Deal, a16z's Vertical AI Breakdown
One vSaaS breakdown. One biz story. One 'how to'. In your inbox once a week.
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Alright, let’s get to it…
One vSaaS Breakdown:
LeagueApp’s Recent BIG TIME Round
If you haven't heard of LeagueApps - it is an amazing vSaaS business for youth sports.
Huge shoutout to my friend @Brianlitvack (who is an incredible guy w/ strong values & character) for closing a BIG TIME deal with Accel-KKR.
Excited to see their world domination continue!
In honor of Brian and the League Apps team, I’m reposting the case study I did on them a year or so back…
LeagueApps: vSaaS for Youth Sports
A software company that builds "free" tools for youth sports recently surpassed $1 BILLION in GMV & $20 MILLION in revenue.
Let's dig into LeagueApps, a beautiful "boring" business:
LeagueApps was founded in 2010 by Brian Litvack and Evan Brandoff. Through their passion of sports, they aimed to simplify and improve the administrative aspects of managing leagues. They've built a beautiful vertical SaaS business in the process...
LeagueApps acquires customers through a big inside sales team. They leverage that, plus a combination of digital marketing efforts, referrals, and industry events.
Inside sales led. Digital Marketing & industry events + referrals supported.
They give away their platform for free up front and take a piece of the transaction on registrations. Classic "land & expand" strategy.Today, their customer base exceeding 10,000 leagues and clubs across various sports.
Their product suite includes:
Websites
Registration
Communication Tools
Program Management
Payments
Analytics
These tools simplify the complexities of league and team administration, providing a user-friendly interface for organizers, coaches, parents, and student athletes.
They aren't the only ones fighting to win the space. NBC Sports recently jumped in, acquiring SportsEngine. But LeagueApps focuses on an all-in-one solution with no adds that primarily monetizes through transaction fees.
Their revenue has been on a steady upward trajectory, surpassing $20 million annually. With an estimated year-over-year revenue increase of ~30%, their demonstrating their ability to capture a significant market share in the sports management tech space.
According to TechCrunch, LeagueApps has raised $35M to date. Contour Venture Partners has tripled down on the business, leading their Seed, Series A and B. They've also brought on some celebrity and sports investors include Major League Baseball, Swin Cash, and Derrick Dockery.
But it hasn't all been sunshine and rainbows. It never is. During COVID-19, LeagueApps, like many sports-related businesses, faced challenges due to the widespread cancellation or postponement of sports activities.
Their revenue went to ZERO basically overnight.
But they adapted swiftly and became a pillar of support in the youth sports community during such a tough time.They made all their products free for a period of time, providing communication tools, community webinars on safety, and symptom reporting tools.
This helped revenue come roaring back as the pandemic moved into the rearview mirror. It also helped them establish their brand as a partner their customers could trust, and a company that they knew had their back.
LeagueApps remains committed to making sports more accessible, enjoyable, and organized for everyone involved, from grassroots leagues to professional organizations.
They've built one of the market leaders and I'm excited to watch Brian and his team build a behemoth!
One ‘How To':
Vertical SaaS, Now With AI Inside
In 2020, we wrote about how fintech scales vertical SaaS and noted that by adding fintech, SaaS businesses can increase revenue per customer by 2-5x and open up new SaaS markets that were previously inaccessible due to market size or customer acquisition cost.
Four years later, vertical SaaS (VSaaS) is scaling once again, but now it’s for a different reason: artificial intelligence.
In this post, we look at how AI is increasing VSaaS revenue per customer by enabling vertical SaaS companies to take on tasks previously too complex for software. With AI, many customers of VSaaS can dramatically reduce internal and external labor spend on sales, marketing, customer service, operations, and finance. (We’ll look at how AI is opening new markets — or making existing ones more attractive — in our next post).
The evolution of vertical SaaS
Vertical software markets tend to have winner-take-most dynamics, where the vertical SaaS business that best serves the needs of a specific industry often becomes the dominant vertical solution.
The first wave of VSaaS, cloud, brought services online (e.g., Shopify for e-commerce, ServiceTitan for service workers). The second wave, cloud + fintech, increased revenue by enabling VSaaS companies to embed financial services within their software offerings. For example, by embedding payments, lending, payroll, and more, Toast is now at $1.5 billion ARR and makes over 80% of its revenue from financial technology solutions.
We are now witnessing the beginning of a third wave of vertical SaaS: cloud + fintech + AI. This third wave, which is the most impactful force in the category to date, further expands the surface area of VSaaS by turning Labor into Software.
AI increases VSaaS revenue per customer
To better understand the power of AI to VSaaS, let’s look at the vertical software company Mindbody, which serves fitness and beauty studios. In wave one (cloud), Mindbody handled booking and scheduling appointments online. In wave two (cloud + fintech), they expanded their business to offer payroll for staff, customer payment processing, and insurance for studios.
Fitness studio operators subscribing to Mindbody, however, still need people to run much of their operations, such as marketing, sales, customer service, and finance.
Enter wave three: AI. We will always crave human connection for some roles (we all love our favorite fitness instructor!), and Mindbody will continue to want to own key strategic hires. However, roles where human connection isn’t a key benefit, delivering on a core product, or particularly differentiating to the business, are all candidates to at least be augmented, if not fully replaced, by AI.
With the right solution, many businesses consuming VSaaS can dramatically reduce internal and external labor spend on sales, marketing, customer service, operations, and finance. This should further increase the take rate of VSaaS companies by an additional 2-10x.1
Beyond Mindbody, one could imagine a future vertical SaaS platform that could eliminate labor and other tooling across business operations entirely.
It’s just the beginning
AI is unlocking a new era for vertical SaaS. In functions like marketing, sales, customer service, and finance, AI will augment, automate away, or in some cases, replace, many of the rote tasks currently performed by people, allowing VSaaS companies to offer even more with their software. In doing this, they will not only increase revenue per customer (2-10x), but — as we will see in a follow-up post — will open opportunities in markets previously deemed too small, or not cost efficient enough to acquire customers.
Building here? We at team a16z would love to talk to you.
Footnotes:
1. Assuming an average ACV of $6k ($500 per month, split between payments and subscriptions), Mindbody could double their ACV by providing additional generative AI-driven services to their end studios and capture these savings by charging higher prices.
Fitness and recreational sports centers employ more than 100,000 office and administrative workers across receptions, customer service, and information tasks. By saving one worker at $60k per year for a given fitness business, Mindbody could easily capture 10% of this upside, and thus double ACV by an additional $6k. In the most extreme case they could capture 100%, and 10x ACV, or capture savings in other functional areas: marketing, sales, and finance.
At a macro level, total US software spend ($313bn) was just 3% the size of total labor spend ($10.5 trillion) in 2022, providing plenty of headroom for VSaaS companies to grow into swapping software for labor.
And a friendly reminder to go grab the 1,000+ page bible on all things Vertical SaaS. Industry breakdowns, scorecards, how-to’s, vSaaS company case studies, and much more!
Have a product or service that would be great for our audience of vertical SaaS founders/operators/investors? Reply to this email or shoot us a note at ls@lukesophinos.com
Really interesting!