What the Biggest Questions VCs want to Know when Investing in Horizontal SaaS

I have been writing a great deal about the woe of horizontal SaaS lately.

TL;DR

Horizontal SaaS is Extremely Difficult in Todays Market because

• The influx of competitors in core markets creates solutions fatigue for buyers.

• Competition decreases ACV while increasing the sales cycle.

• Getting mindshare is nearly impossible with early-stage products without an insane cash burn.

• Vertical solutions create a better long-term outcome based on less capital needed to find PMF and GTM strategies.

That said, I found another data point to support my case in vertical SaaS. The anecdote came from a colleague launching a “bundling” of capabilities in the Data Lake space. Think Snowflake for the mid-market. The founding team is very accomplished, and they recently graduated from YC.

He told me that he had been running across a consistent theme among coastal VCs in his fundraising efforts. The question was, “who do you know” in their customer market? Essentially the investors were trying to understand how connected the founders were to their target market so they could hopefully sell their software in a warmer setting. They were trying to deduct an element of de-risking for early-stage sales traction.

I found this interesting as they were not trying to see differentiation or market positioning. Instead, the investors were looking for “low hanging fruit” in which the company could show traction to raise the next round.

This strategy seems pretty stressful for a founder. It also shows the amount of thought put into investments on who will be the winner in certain categories.