Linear #012: vSaaS & VC's, Creating Your Company Value Prop, The Fall Of Myspace

One Vertical SaaS breakdown. One 'How To'. One Business Story. In your inbox once a week.

Luke Sophinos

Mar 20, 2023

Happy Sunday folks!

Another episode of the linear newsletter here.

Let’s dive in!

One Vertical SaaS Breakdown:

VC’s & Vertical Software

Vertical software investing has been dominated by Private Equity. They’ve made a killing in the process (just look at Constellation as an example). More VC’s need to think about jumping into the category, immediately…

Surprisingly, I think vSaaS is still not understood by most traditional venture investors. The majority of public SaaS companies are horizontal, meaning they serve customers in many different types of industries.

We only have a few examples of breakout vertical SaaS successes: Toast, Procore, and Veeva are a few that come to mind.

Jason Lemkin shares similar thoughts, citing how IPO delays by ServiceTitan and MindBody are delaying valuable learnings for VC’s and entrepreneurs about how to scale these businesses in a venture type of way.

Jason ✨Be Kind✨ Lemkin  @jasonlk

We're just beginning the age of Vertical SaaS Every sizeable industry will have a HubSpot of Our Vertical, but some are just getting started A bit of a bummer with the downturn, we may not get to see the ServiceTitan and MindBody IPOs until next year Two to learn from

What do we know though? Vertical SaaS companies have an advantage over their horizontal counterparts in two key areas:

Moats ie customer retention
Customer NPS - if it’s purpose-built for an industry the product experience should be a lot better

VSaaS can’t typically grow as fast (initally) as horizontal companies, due to much smaller TAM’s. BUT, FinTech and InsureTech are two examples of how revenue can grow massively after a biz has gained solid market share with their software tools.

Just look at Toast's revenue diversity and how much FinTech is driving:

If venture’s goal is to build long-lasting enduring companies it seems that vertical software investing should be a no-brainer, even if the initial years don’t have insane hockey stick growth.

TBH, I'm actually quite surprised at how much of a blue ocean opportunity vSaaS seems to be for entrepreneurs, investors, and most importantly, their customers.

I’ve tripled down on it - founding, operating, and investing in the category. I hope more will join in. Seems to me like it’s the *next* era of b2b software. What do you think?