Ten Lessons from a Decade of Vertical Software Investing

Ten Lessons from a Decade of Vertical Software Investing: Insights for Founders

At Coalition, we’ve spent over a decade investing in vertical SaaS companies, and our journey has taught us a few crucial lessons on what it takes to build industry-defining companies. From spotting market opportunities to unlocking new revenue streams, here are ten key takeaways for vertical software founders.

1. Market Leadership is the Ultimate Prize

Aspiring vertical software businesses should aim for market leadership. Success comes in three ways:

• Underserved Markets: Attack industries that lack software solutions (e.g., Procore in construction).

• Overlooked Segments: Serve neglected segments within mature markets (e.g., Mindbody in SMB wellness).

• Emerging Markets: Tap into new industries like fintech or cannabis (e.g., Mambu and Dutchie).

Whether through innovation or disruption, getting a foothold in these spaces often leads to dominance.

2. Layer Your Products to Drive Growth

The best vertical software companies continuously expand their product offerings—what we call the "layer cake" strategy. A prime example is Veeva: they started with CRM software for pharma reps, then launched Veeva Vault, a new product line that catapulted the company to multi-billion-dollar success.

Founders should always think ahead—build new products before your core offering reaches saturation.

3. Integrated Services Boost Revenue While Feeling “Free” to Customers

Adding services like payment processing or payroll to your software can be a game-changer. Companies like Toast and ServiceTitan generate significant revenue from payments, often making these cross-sells feel “free” to customers since they replace existing tools. Integrated solutions drive loyalty and lower the barriers to adoption.

4. Monetize End-Customers in B2B2C Models

In consumer-facing industries, don’t overlook the opportunity to monetize the end-users. Brightwheel, which serves childcare providers, realized that parents wanted more visibility into their children’s daily activities. By focusing on consumer experience, Brightwheel grew beyond its original B2B market. Whether through consumer lending, booking fees, or marketplaces, there's untapped revenue potential.

5. Data is an Untapped Goldmine

Few vertical software companies are maximizing the value of data. Data-driven insights, benchmarking, and even selling proprietary data can provide significant growth opportunities. Look at companies like Guidewire and VTS, which have built revenue streams through data benchmarking and selling market insights.

6. Revisit Pricing Regularly

Pricing is one of the most overlooked opportunities for vertical software companies. Experimentation is key—whether through price increases, new tiers, or usage-based models. Regularly revisiting your pricing model can unlock significant growth without additional R&D or GTM investment.

7. Consider Moving Upmarket for Long-Term Growth

In many verticals, staying in the SMB space isn’t enough. Moving upmarket, as nCino did by expanding from small credit unions to large banks, can be crucial for maintaining growth. However, it’s essential to be cautious—moving upmarket requires mature products and scalable sales and support teams.

8. Use M&A Strategically, but Carefully

Acquisitions can help expand your product offerings or consolidate market share. However, M&A can destroy value if not done thoughtfully. Successful acquisitions focus on clear financial ROI, such as RealPage’s strategy of acquiring products to cross-sell to its customer base.

9. Deepen Your Moat Once You’re a Market Leader

Once you've established market leadership, focus on building barriers that prevent competitors from unseating you. This can include increasing switching costs, building platforms with strong API integrations, and creating collaboration tools to entrench your company further into the industry ecosystem.

10. Prepare for Multiple Exit Strategies

Not every company is destined for an IPO, and that’s okay. Founders should regularly assess their exit paths, whether aiming for a strategic exit or a private equity acquisition. If IPO scale seems out of reach, positioning your company for acquisition by building strong strategic relationships with potential buyers is a smart move.

Bonus Lesson: B2B Payments are the Next Frontier

The rise of embedded fintech solutions is creating new opportunities for vertical SaaS companies to integrate B2B payments into their offerings. Whether through faster payment methods, cross-border payments, or offering credit card options for SMBs, this is an untapped layer cake waiting to be explored.

Conclusion
The vertical SaaS landscape continues to evolve, and the opportunities are bigger than ever. By choosing markets wisely, layering products for growth, and strategically positioning for exit opportunities, vertical software founders can build the next generation of industry-defining companies.