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

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

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

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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.

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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