The Unstoppable Rise of Vertical SaaS

Think back to the early 2010s. The hot new startups disrupting industries were horizontal SaaS companies like Salesforce, Slack, and Box - offering digital solutions flexible enough for any sector.

Fast forward to today in 2023, and a new breed of disruptor has emerged. Industry-specific vertical SaaS companies are capturing investor dollars and market share at a breathtaking pace.

"Vertical SaaS is one of the biggest trends out there that no one is talking about," Kyle Poyar, VP of Growth at OpenView Venture Partners, told SaaStr last year

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The sheer velocity of vertical SaaS growth shows no signs of slowing. Recent data highlights the trend:

• Vertical SaaS companies raised $9.5B in VC funding in Q3 2022, a 15% YoY increase per Pitchbook.
• 70% of all SaaS acquisitions in 2022 were vertical deals, per Pitchbook.
• Workday acquired vertical HR solutions like Zugata in 2023, and Industry Ventures launched a $500M vertical SaaS fund.

At the same time, some generalized horizontal SaaS companies are hitting roadblocks. DocuSign shares plummeted 40% in 2022 amid slowing growth, highlighting the challenges of staying broad as buyers seek specialized solutions[1]

Even legacy horizontal platforms like Salesforce and ServiceNow are scrambling to acquire industry-specific capabilities.

But why this vertiginous climb? Buyers don't believe generic one-size-fits-all solutions can fully address their unique industry challenges anymore.

Tailored beats generalized. Specificity trounces breadth. That's what today's market is saying loud and clear

Now the question becomes: can the ageing horizontal giants catch up via acquisitions? Or will newly empowered vertical Davids conquer the generalized SaaS Goliaths?

One thing is certain - the vertical ascent shows no signs of plateauing in 2023. Specialized solutions are eating the SaaS world.

[1] https://www.cnbc.com/2022/09/22/docusign-shares-fall-on-disappointing-billings-forecast.html