The State of Vertical SaaS 2021
When it comes to vertical SaaS, the past year has been one for the books.
The public markets experienced the blockbuster debuts of Procore, Blend, and Toast, which collectively raised $1.9 billion with their IPOs. Based on Fractal’s Vertical SaaS Index, which tracks the performance of all publicly traded vertical SaaS companies, more industry software companies went public in the first three quarters of 2021 than in any other year in the past decade.
In private markets, all eyes were on Squire, a software platform for barber shops founded in 2016. Last December, Squire raised a $59 million Series C led by Iconiq Capital that tripled its valuation to $250 million. In June, Squire tripled its valuation again with a $60 million round led by Tiger Global that valued the company at $750 million. Even in the frothy market conditions that have characterized the past year, Squire’s funding rounds turned heads and underscored several fundamental insights that are driving investor enthusiasm for vertical SaaS.
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Squire’s blitzscale approach to growth underscores the importance of market dominance for vertical SaaS companies. A key advantage for companies building software for a particular industry is the potential to capture greater market share than horizontal SaaS companies. Squire raised its D round before it had spent the majority of the capital it raised during its previous round to fuel growth abroad and ward off early-stage competitors such as Boulevard.
Squire’s rapid growth also demonstrates that vertical markets are often larger than they appear. In the past, many investors have shunned vertical SaaS because they underestimated the size of addressable markets. The reason for this is that TAM is typically evaluated relative to the base of currently installed software, which misses the many opportunities for market expansion through fintech integrations, embedded e-commerce solutions, expansion into adjacent verticals, and natural market expansion through customers converting from analog workflows to digital ones. Five years into its journey as a startup, Squire is already used by more than 2,000 barbershops in the US and is leaning into market expansion via fintech integrations. The results of its growth strategy speak for themselves.
Of course, Squire was hardly the only vertical SaaS company making waves in private markets. ServiceTitan, which develops software for the field services industry, acquired Aspire, a landscaping company, for $200M as it laid the foundation for its IPO. Qualia, a real estate software company led by Fractal co-founder Nate Baker, raised a $65 million round last December that tilted it into unicorn territory. And on the earlier end of the startup spectrum, Cents, a seed-stage software company for laundromats, raised just shy of $9 million over the past year.
Together, this data leads to an inescapable conclusion: The vertical SaaS revolution has begun.
With so much happening in the vertical SaaS sector it can be hard to step back and see the bigger picture. Earlier this month, Fractal published its first annual State of Vertical SaaS report that provides a comprehensive overview of the biggest events in industry software over the past year and our analysis of key trends in the sector. We’ve also included some of our biggest predictions for the future of vertical SaaS, which is looking brighter than ever.
You can read the full report online or download a PDF.
One More Thing…
Fractal Vertical SaaS Index Performance 2010–2021
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