How Founder Backgrounds Correlate with vSaaS Success
A Quantitative Analysis of Exits + Our Focus on "Industry Insiders"
As discussed in our first essay, we are entering a golden age of vertical software. In 2023, for the first time, more than 50% of all B2B software exits were vertical.1 This share has doubled over the past five years and has been accelerating since we started investing in the category over a decade ago.
In previous posts, we have shared our view that the verticalization of software is an inevitable result of two ongoing trends: (1) the relative decrease in the costs to build software, thanks to more accessible infrastructure and capital, making ever smaller markets capable of supporting venture-scale investment outcomes; (2) the increasing power of software, leading to its adoption across industries, importance as a competitive necessity, and ever-expanding share of GDP.
Today, we will analyze this history of vSaaS exit performance to begin answering a critical question the macro numbers gloss over: using outcomes as a guidepost, what factors drive vertical startup success? As we share below, there is a solid quantitive case that the answer lies in the makeup of founding teams.
The Industry Insider
We started Euclid with the belief—informed by our collective 20 years of first-check investing in the space—that founder profile was one the foremost ingredients to vertical software success. That is why we focus on a founder type we call the “Industry Insider.” These are domain experts with deep connectivity to their field, usually from industry roles or sector-specific experience from past startups. Industry Insiders understand their stakeholders first-hand in a way research can’t replicate: how they think, talk, and buy.
Armed with singular insights, these founders leverage technology not only to solve immediate business problems, but also to drive long-term behavior change in their vertical (which often are not early tech adopters or even particularly warm to process change). Equally importantly, they bring immediate industry credibility to their startup, providing early access to prospective customers even ahead of product development. Finally, they leverage their relationships to build high-quality teams and impactful corporate development relationships from Day One.
Industry Insiders, as we define them, have a distinct advantage:
Understanding nuanced stakeholder relationships, physical workflows, buying patterns, and parlance of decision-makers in their vertical, informing wedge product selection and driving behavior change.
Leveraging credibility and relationships to lock in early users and partners.
Attracting industry-specific talent often necessary in G2M, BD, support, ops, and sometimes even product roles.
While many early-stage VC funds highlight the importance of founder-market fit, we saw little to no data-driven exploration of ideal founder profiles in vSaaS. This led us to dive into the numbers to stress test our thesis—anecdotally informed to date—that founders with an Industry Insiders profile have a measurable advantage in achieving winning vertical software outcomes.
The Impact of Founder Profile on Vertical Exits
Using the Industry Insider criteria shared in our last section, we evaluated basic CEO profiles for all vertical software exits >$100M over the last five years. We then analyzed full founding teams across 2022 and 2023. Our dataset represents $840B of exits across nearly 700 IPOs and acquisitions.
While our initial findings warrant a deeper historical dive, the quantitative evidence in support of our Industry Insider thesis is very strong.
By raw deal count, teams with an Industry Insider (or “Vertical Founder” in the chart below) represent 73% of all exits. By gross exit dollars, however, teams with a Vertical Founder capture 84% of dollars.
We think it’s important to call out one point here. The “Vertical Founder” category above includes any co-founder, not just the CEO. In many cases—in our portfolio or otherwise—the CEO themselves may not fit the classic Industry Insider mold. But more often than not, they had the foresight to recognize the importance of surrounding themselves with senior peers that did. By these numbers, those startups would reap the same advantage as Industry Insider CEOs (or at least, we don’t have the analysis to say that they don’t). This aligns with our experience and how we think about founding vertical software teams. As a CEO, knowing what you don’t know—and building your team accordingly—can be as powerful as having the first-hand experience yourself. At Euclid, we value self-awareness as highly as any other founder quality.
The Ongoing Rise of Vertical Mafias
Our findings above led us to unpack a secondary factor we found underpins vertical SaaS success—one that has important implications for a first-check venture strategy like Euclid’s. Looking at the numbers, exited vertical businesses are significantly more geographically diverse than their horizontal software peers, appearing outside of traditional tech hubs more often. Analyzing 2022 and 2023, over 70% of horizontal software exit value was generated in the Top 5 startup metros (San Francisco, Boston, New York City, Seattle, and Los Angeles)—the majority of vertical exit value, conversely, was generated outside of these hubs.
In our view, this contrast in geographic distribution is likely driven by the fundamentally different origins and networks of vertical software founders. They are more likely to build where their industry thrives and are naturally less anchored to the big tech HQ cities. As we have seen in other technology categories, we believe earlier waves of vSaaS success—for example, RealPage in Texas or Vertafore in Colorado—create pools of future vertical founders in less traditional venture regions, driving future founder success. Over the last few years, we’ve seen the rise of several such “Vertical Mafias,” both from winners like ProCore (Santa Barbara) and well-funded flame-outs like Olive Health (Columbus).
While our analysis above focuses on vertical software exit data, more leading-indication sources also seem to underscore the higher geographic diversity nature of vertical success. Of Inc. 5000’s 2023 Fastest-Growing Companies in America, seven of the top 10 are vertical—just one of those started in a Top Metro, with (interestingly) none in the Bay Area.2 With recent sea changes in the adoption of remote / distributed work, we are seeing vertical founders feel more flexibility to stay put through the formative years of their companies, deferring the decision to establish coastal offices through Series A, if not indefinitely.
Unpacking the Why
Our initial data shows that Industry Insiders drive outsized vertical SaaS outcomes, or at least that similar founder backgrounds correlate with exit success in recent years. The harder question is why those backgrounds lead to superior outcomes. While quite interesting, this analysis doesn’t make the job of an early-stage vSaaS investor much easier for a number of reasons:
Founder experience is idiosyncratic and not easily distilled into a few data points
Not all Industry Insider experience is equally valuable to a given vertical problem
High-profile examples of non-Industry Insider success in vertical plays do exist—it is possible that certain non-vertical backgrounds achieve high rates of success but are simply much less likely to found a vertical software business
The bar for achieving an exit is high and many other factors are at play
To make these findings more practically useful, we need to unpack the why behind the data. In Part II of this essay, we’ll elaborate on the qualitative aspects we believe underpin the Industry Insider advantage and how we’ve used these learnings to optimize Euclid’s investment strategy.
Euclid (2024). Euclid Analysis: Vertical Share of B2B Software Exits 2019-2023. UsingPitchBook.
Inc. 5000 (2023). 2023 Fastest Growing Companies in America. Inc. 5000 website.