Growth Equity Investors for Vertical SaaS Companies

By the York IE Investment Team and Luke Sophinos

When people think about exceptional SaaS businesses they often think about horizontal ones: Salesforce, Google, OpenAI, amongst many others. Horizontal SaaS provides a general software solution that is applicable to multiple industries. Naturally, targeting more industries means that the total addressable market is going to be extremely large.

The breadth of that potential customer base, however, can also be its downside as building a highly relevant product experience and a cost-effective go-to-market (GTM) can be difficult when casting too wide of a net.

Alternatively, vertical SaaS refers to cloud-based software solutions designed specifically to serve the needs of a particular industry or niche market. Vertical SaaS is tailored to address the unique requirements, workflows and challenges of specific sectors such as healthcare, finance, real estate or manufacturing, amongst others. Some great companies have been built only targeting one industry: Procore Technologies for construction, Toast for restaurants and Epic Systems for healthcare, for example.

By focusing on a particular vertical, these SaaS companies can provide relevant industry-specific features, compliance standards and integrations that are vital for users in that field. It can also create a much more targeted and cost-efficient GTM approach that is excellent for founders trying to build sustainable companies.

York IE is a proud investor in many vertical SaaS companies that are disrupting the way that traditional industries are operated. For example, BlueTrace is building the operating system for the seafood supply chain, Vend Park is a one-stop shop for parking garage owners and operators, and 40grid is changing the way that pest management companies run their businesses.

While there has been an influx of angel and venture capital at the earliest stages of vertical software startups, as they grow in size, these companies are also attracting larger and later stage funds with deeper pockets.

In particular, growth equity is a private investment strategy sitting between venture capital and traditional private equity, focusing on companies with proven business models and rapid revenue growth. Growth equity investment differs from venture capital because VCs often invest in higher-burning, faster-growing companies, meaning more upside but more risk as well.

Growth equity firms, on the other hand, target companies with more established products and customer bases, usually experiencing over 20% yearly revenue growth, and invest based on more robust forecasts, clear business plans and reasonable paths to profitability. Investments are typically minority stakes (but can be majority, depending on the firm), using little to no debt, offering downside protection and a distinct risk-reward profile.

As the popularity and success of vertical SaaS companies continues to grow, so does the pool of investors. Often the landscape or lists of potential investors interested in companies targeting smaller addressable market companies is opaque, especially as they grow in size.

To navigate finding the right partner at the growth stage, York IE teamed up with Luke Sophinos, a leading voice on vertical SaaS at lukesophinos.com and the founder and CEO of one of the largest vertical SaaS businesses for trade schools in the U.S., CourseKey, to put together an extensive list for vertical SaaS founders to turn to as they get to the growth stage.

Below you will find a list of vertical SaaS growth equity investors and examples of a few of their vertical software investment portfolio companies.