Horizontal SaaS vs. Vertical SaaS – Which flavor of SaaS do you prefer?
Allied Advisers has updated their previously published Flavors of SaaS report where they include an analysis across a select group of companies comparing operational metrics across the two flavors of SaaS; Horizontal SaaS and Vertical SaaS.
As advisors who have worked across both flavors, they’re sharing some interesting differences.
While Horizontal SaaS companies generally have larger TAM, Vertical SaaS companies can be more capital efficient and have better operational metrics and capital efficiency, making them better suited for middle-market funds.
While there are category leaders in Horizontal SaaS, there are also a lot of opportunities in building Vertical SaaS companies which can become leaders in their own sectors. In today’s environment where capital efficient growth is being keenly measured, Vertical SaaS companies offer compelling opportunities for investors and buyers.
FOUR HIGHLIGHTS FROM THE REPORT:
I. Many SaaS firms focus on Vertical SaaS models to target a specific niche, allowing them to better serve industry specific client demands and making them easier to market.
II. Vertical SaaS has seen rapid growth of businesses with smaller but more focused TAM (as compared with Horizontal SaaS) and generally more capital efficient business models.
III. The market downturn in 2022 and Covid impacted some Vertical SaaS markets but overall digital transformation continued to accelerate within industries, with standardized solutions not being sufficient to address vertical needs.
IV. We see continued investor interest in Vertical SaaS due to high growth prospects supported by strong business fundamentals, along with generally better performance on multiple metrics than peer Horizontal SaaS companies.
For the full Allied Advisors report, see below:
Gaurav Bhasin is the Managing Director of Allied Advisors