Ideas we'd like to invest in: Industry-specific SaaS solutions

Following my post about electronic signing I'd like to describe another area that we'd like to invest in. It's not a specific idea this time, rather a category of startups that we're very interested in:

Industry-specific SaaS solutions

I talked about the topic before when I wrote about "The land of a thousand niches" and touched on it in my "1st DO for SaaS startups". There are several reasons why we're so excited about vertical SaaS solutions. *

• Focusing on a specific vertical simply allows you to build a better product for the industry that you're after. Whereas a generic product needs to be the lowest common denominator for different types of customers, a vertical solution can be tailored exclusively to the needs of your specific target audience.
• By the same token, a vertical focus also allows you to tailor your messaging to one target group. Take our portfolio company Clio as an example. Look at their website and think about how much weaker their proposition would be if they had to keep it generic to address a broader target audience.
• Knowing exactly who your target group is also makes sales and marketing much more straightforward. It means you'll know which publications your target customers read, which conferences they attend, which other products they use, and so on. You can even get their names and addresses from the yellow pages or other directories. And because people in an industry usually talk to each other a lot, it's easier to get a critical mass of mindshare which is so important for organic growth.
• Competition tends to be less intense in verticals. Maybe because building a SaaS solution for field-service businesses like landscapers and snow removers doesn't appear like the sexiest thing on Earth, maybe because opportunities in verticals don't seem large enough for big enterprises. This gives you a chance to dominate a category and achieve extraordinarily high market share.

Boris Wertz, a good friend and co-investor in two vertical SaaS solutions, Clio and Jobber, recently wrote about the topic as well and has some additional points.

I have one caveat regarding vertical SaaS solutions: Make sure that the vertical that you're going after is big enough, i.e. aligned with your ambition with respect to the size of the company that you want to build. Expanding from one vertical into another one isn't easy. Maybe you won't have to start from zero, but the very reasons which make a vertical strategy attractive in the first place can also mean that most of the value that you've built in one category (domain expertise, product/market fit, mindshare,...) can't be easily transferred into another category.

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* This doesn't mean that we're not excited about SaaS startups which don't have a vertical approach. If you focus on a specific part of the value chain (e.g. accounting, marketing, sales) it makes perfect sense to go horizontal. It's the "practice management" type product, which encompasses a large part of the value chain, for which I recommend the vertical approach.

Portfolio update (part 1)

As 2010 is drawing to a close I’d like to take a moment to give you a quick update on my angel investment activities and more importantly, thank the incredibly talented and hard-working people who have made it such an amazing year.

Since becoming a full-time angel investor in 2008 I’ve made 14 seed investments, with 4-5 additional ones being on the way. Except for two of my first investments that didn’t work out – rookie mistakes, fortunately pretty small ones – I’m absolutely blown away by the success of each and every company in my portfolio.

Some highlights:

Zendesk has had a phenomenal year. In May we announced that we’ve reached 5,000 paying customers. We didn’t publish an updated number since then but I think it’s no secret that the number of Zendesk lovers worldwide has continued to explode throughout the year. With a world-class management team and Board, one of the best products and brands in B2B software and a recent $19M cash infusion Zendesk is ideally poised to bring Cloud-based zen and good karma to even more people in 2011. Mange tak to Mikkel, Morten, Alex, Michael and the whole crew.

Speaking of the Cloud, 2010 may mark a tipping point with respect to the adoption of Cloud-based services in the legal technology field: In 2010 my portfolio company Clio, which provides a web-based practice management solution for solo lawyers and small law firms, has grown its customer base by more than 400%. The company also continues to launch new features and initiatives pretty much on a weekly basis, boasts (by far) the highest trial-to-subscription conversion rate that I’ve ever seen and has a ton of great new stuff in the pipeline. Thanks and merci to you, Jack and Rian, and your growing team of hand-picked rock-star developers and industry experts.

The development of Momox, which has bought more than 8.4 million used books, CDs, DVDs and games from private sellers since 2006, has been equally impressive. We’ve grown revenue by more than 2.5x , recruited two stellar executives to head logistics and marketing, moved to a new 85,000 square foot warehouse, relaunched our online shop, raised a couple of million Euros from Acton Capital Partners and scaled up the whole organization to make sure that we can handle our continued growth. Huge kudos to Christian Wegner and his 150+ people in Berlin for this gigantic and successful effort – jut jemacht!

More in part 2.