Omar El-Ayat’s Post

In order to realize its full potential—at least in the commercial world, where we believe much of the dollar opportunity exists—Generative AI must achieve practicality through specialization. It follows that the most promising B2B application-layer opportunities for LLMs will be vertical, where: (1) harder-to-aggregate or proprietary data is required for model training, (2) the addition of domain-specific symbolic models/experts are necessary for accuracy, and/or (3) layers of workflow software are necessary to deliver real-world impact. Read the first of our two-part post on Vertical AI.

Last week, we shared Part 1 of our essay on market sizing in vertical software, covering how SaaS TAMs have shifted over time and the impact of venture hype cycles. In today’s Part 2, we’ll dig deeper into how we think about building conviction in a market at Euclid. https://lnkd.in/gU_8WEnf

The first of a two-part essay we wrote on market sizing and evaluation in Vertical Software. "We have already seen these software verticalization dynamics lead to breakout successes in the market. For example, Procore, Veeva, and Toast are well known public SaaS leaders in the construction, life sciences, and food service verticals, respectively. This cohort, however, is now ~20 years old. As we look into the future, we believe that most have underestimated the vertical phenomenon, both in terms of the viability of initial markets once thought “too small” and the lasting competitive edge that initial hyper-specialization can bring. While many VCs anchor their conception of a viable TAM by looking backwards, the wheels of software verticalization have continued to turn, creating a significant opportunity for contrarian early-stage investors. In 2023, vertical software and horizontal reached exit value parity for the first time." https://lnkd.in/gsvKKE7W

Vertical Software is more than traditional SaaS. Check out a new simple framework we built for Vertical Software business models.

Nic Poulos and I just published a post on the the Vertical SaaS Profit Premium. "Public Vertical SaaS companies trade at nearly double the EV / Gross Profit multiples of their horizontal peers—11x vs. 5x, on the median" So why do the public markets pay more for a dollar of vSaaS profit vs their horizontal peers? See below for our thoughts. https://lnkd.in/gVBuyN-7