Dave Yuan - A Primer on Vertical Market Software - [Invest Like the Best, EP.335]

Invest Like the Best with Patrick O'Shaughnessy

My guest today is Dave Yuan. Dave is the Founder and Partner 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.

The Vertical SaaS Knowledge Project - Tidemark Capital

Founders Podcast

Founders Episode 136 - Estee Lauder

Founders Episode 288 - Ralph Lauren

For the full show notes, transcript, and links to mentioned content, check out the episode page here.

-----

This episode is brought to you by Tegus, the modern research platform for leading investors. Stretch your research budget with flexible expert calls you can trust. At a fraction of the cost of traditional expert networks, Tegus customers pay only what an expert charges – with zero markups and no confusing call credits – netting an average 70% savings. Don’t want to conduct a full hour call? Tegus offers the ability to schedule 30-minutes, an offer you won’t find anywhere else. And they don’t stop there. With white-glove custom sourcing for every project and robust compliance measures, including a dedicated 50+ analyst team that vets every call transcript, Tegus ensures your privacy and protection. As the industry innovator for qualitative insights, Tegus helps you find the right experts you need at a quality and speed that can’t be matched. For a limited time, as a listener, you can trial Tegus for free by visiting tegus.co/patrick.

-----

Invest Like the Best is a property of Colossus, LLC. For more episodes of Invest Like the Best, visit joincolossus.com/episodes.

Past guests include Tobi Lutke, Kevin Systrom, Mike Krieger, John Collison, Kat Cole, Marc Andreessen, Matthew Ball, Bill Gurley, Anu Hariharan, Ben Thompson, and many more.

Follow us on Twitter: @patrick_oshag | @JoinColossus

Show Notes

(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