Jake Saper Gives Reasons To Start A Vertical SaaS Business | Future of AI Businesses

The Rise of Vertical SaaS and AI

• 💡 Emergence Capital has a long history in B2B software, starting with early investments in horizontal SaaS like Salesforce and later pioneering vertical SaaS with companies like Viva.
• 🎯 The focus on vertical solutions has become consensus due to the tailored products for end-users and the unique advantage of domain-specific data for AI models.
• 🧠 Emergence's 2016 thesis on "coaching networks," now known as copilot-style AI, highlighted the use of AI to coach workers and learn from their actions, exemplified by early investment in Chorus.

Building Successful Vertical AI Companies

• ✅ Founders should prioritize solving a burning problem with a unique insight rather than simply applying new technology.
• 🤝 The ideal early founding team, or "talent trifecta," includes a domain expert, a SaaS expert, and a brilliant CTO to build the product.
• 🔑 Acquiring domain-specific data is crucial for vertical AI; strategies may involve partnerships with incumbents, but startups need a clear plan to obtain this proprietary data.

Emerging Business Models: AI-Enabled Services

• 🚀 A growing trend is AI-enabled services, where companies sell outcomes rather than just software, using AI to deliver services more efficiently (e.g., a law firm using AI).
• ⚠️ A significant risk is "mirage product market fit," where rapid top-line growth in services masks poor underlying gross margins if the AI doesn't provide anticipated leverage.
• 💬 Even for services, demonstrating the underlying technology is vital for differentiation, building trust, and enabling internal stakeholder management within enterprise sales processes.

Market Dynamics and Buyer Behavior

• 📈 Vertical AI markets are projected to be many multiples larger than traditional software markets, as they can capture a portion of the vast labor spend.
• 💰 The arc of the universe is bending towards outcomes-based pricing, though a bumpy transition is expected, with vendors potentially starting with traditional labor models and shifting later.
• 🔍 Enterprise buyers often initially consider building solutions themselves, but ultimately value a vendor's opinionated perspective, continuous maintenance, and accountability ("throat to choke").

Future Outlook for Vertical AI

• 🛡️ Vertical AI companies must actively build "stickiness" or a "moat" beyond initial landing wedges, potentially by aggregating proprietary data or integrating software components.
• 🔄 Palantir serves as an example of a services company that successfully created recurring revenue by leaving behind software that required ongoing maintenance.
• 🔮 The impact of Artificial General Intelligence (AGI) on vertical AI is anticipated to be a slow and distributed process, similar to how past technological shifts have disseminated.
• 🏢 SMBs could become a compelling segment for AI-enabled services, as these businesses prioritize outcomes and may find such offerings more attractive than complex software.