Invest Like The Best
Episode 335 A Primer on Vertical Market Software
Invest Like The Best

Episode 335: A Primer on Vertical Market Software

Invest Like The Best

Episode 335

A Primer on Vertical Market Software

Dave Yuan is the Founder of Tidemark Capital. We cover what makes vertical market software an interesting space to invest in, why the best vertical SaaS entrepreneurs started out as customers, and the greatest case studies that highlight the business model in action.

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(00:02:57) - (First question) - Vertical Market Software (VMS) offers unique business models and customer benefits

(00:04:02) - Industry-specific software serving SMBs with tailored functionality

(00:06:53) - Assess market based on TAM, competition, and growth dynamics

(00:10:00) - Trust as a nuanced factor in evaluating market opportunities

(00:11:59) - Leverage account-based marketing and local network effects for VMS solutions

(00:14:22) - Vertical solutions offer tailored value and quick results for specific industries

(00:16:21) - Disrupting legacy control points through integration and surrounding functionality

(00:19:07) - Building demand is crucial for small merchants

(00:21:31) - VMS entrepreneurs need operational experience and multi-product mindset

(00:23:13) - Investors need to adapt to the specific growth stage and market dynamics

(00:25:22) - Gross retention is driven by control points, individual-based retention, and distribution

(00:29:43) - Multi-product vertical SaaS: Integrated solutions for efficiency and value

(00:32:33) - Diverse offerings to serve merchants' needs in a multi-product approach

(00:34:07) - FareHarbor's unique strategy led to success in the tour industry

(00:38:43) - LA-based company revolutionized commercial casting with a free software tool

(00:40:03) - Opportunities remain in VMS, with greenfield areas and specific markets

(00:45:12) - Key valuation considerations for VMS businesses

(00:47:27) - Time horizon is crucial for investing in VMS businesses

(00:48:04) - Businesses worth studying in this category

(00:51:12) - The kindest thing anyone has ever done for him

A Primer on Vertical Market Software

Introduction

Patrick
My guest today is Dave Yuan. Dave is the founder of Tidemark Capital, which he started in 2021 after 15 years as a general partner at Technology Crossover Ventures. Dave has been investing in vertical market software as long as anyone I know, and he currently sits on the board of two VMS businesses, Toast and Karbon. He is the perfect guest to deliver a primer on VMS, which is exactly what we do in this episode. Please enjoy my conversation with Dave Yuan. So Dave, since we last talked, I spent so much time really after reading so much of your thinking and work on the world of vertical market software. Obviously, there's now a lot of people that have thought about this, investigated VMS businesses.

What Makes Vertical Market Software An Interesting Business Model

But I think you've been doing and thinking about this as long as anybody, and I'm really excited to make this a master class at this kind of company, building this kind of investing, will stray beyond VMS alone, but you just have this wealth of knowledge that you very kindly have written up and shared with the world. Maybe you can begin by telling us why this topic or this style of business is so interesting to you in the first place?

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