“Software is eating the world” was a phrase coined by Marc Andreessen. Byron Deeter at a recent conference astutely said “Cloud is eating Software”. The robust valuations of subscription software companies compared to legacy software business reinforce this. To keep things exciting in SaaS, there are flavors in SaaS – Horizontal SaaS or Vertical SaaS. As advisors who have worked across both flavors, we see interesting differences. While Horizontal SaaS companies generally have larger TAM, Vertical SaaS companies can be more capital efficient and have better operational metrics making them better suited for middle-market funds. We include an analysis across a select group of companies in each category comparing operational metrics across the two flavors of SaaS. While there are category leaders in Horizontal SaaS, there are also a lot of opportunities in building targeted Vertical SaaS companies which can become leaders in their own vertical sectors.
