In our previous blog post, we - the Speedinvest SaaS & Infra team - laid out our high-level thesis along the entire software stack. Over the next few weeks we will drill down into the individual layers. We are starting at the top of the stack: B2B applications that encode domain-specific knowledge.
SaaS applications have truly come of age in the past few years and have demonstrably shown that they tend to be winner-take-all. They also make perfect venture cases: growth needs to be financed with negative cash flows at first, but once you reach scale you will command a significant advantage over the income share based on high gross margins and recurring top-line. This is one of many reasons why SaaS has always and continues to excite us.
As a first-check investor, we consider ourselves inherently bottom-up and believe that it is presumptuous to try to predict the future. Founders tend to be much more attuned to discovering and solving truly large problems than we ever could be. That said, there are five general themes which we are observing.
SME SaaS is potentially the most challenging of SaaS sub-categories. Markets tend to be fragmented. Average account values are relatively low, leaving small budgets to spend on customer acquisition costs and - until recently - many SMEs lacked a willingness to digitize existing processes. The pandemic has changed a lot about this, compressing “two years of digital transformation into two months” (Satya Natadella). But while horizontal SaaS has created mega-companies like Stripe, those still don’t address ‘the laundromat problem.’ The idea here is that, to run a laundromat, you would need 10 non-optimized horizontal SaaS solutions (from CRM to payments) which will lead to implementation headaches. One person’s headache is another’s opportunity. With SMEs being forced into remote work setups, we are now seeing a huge acceleration in vertical SaaS adoption. Companies like Sona or Meisterwerk (shameless portfolio plugs) are bringing the tools that white collar workers (and entrepreneurs) have long come to expect to the world of frontline and deskless work.
The pandemic has also caused a seismic shift in how we approach physical office spaces with a cascading ripple effect across the entire spectrum of productivity and collaboration tools. We take no clear view on what exactly the office of the future might look like, but we are reasonably certain it won’t be a mirror image of anything before 2020. Anything from calendars (Vimcal, Reclaim.ai, Cal.com) to events (most notoriously Hopin’s insane bull run), offices (Envoy) and collaboration (peaking in Microsoft cloning notion) has to adjust to the new hybrid reality. The office has become unbundled. Any software that isn’t set up for cloud-based collaboration will either have to adapt their roadmap or piggyback on the infrastructure of streaming companies like Flaneer (another shameless portfolio plug). Aided by exponentially decline in the cost of cloud processing and storage, even the concept of company-issued hardware might become obsolete as anyone can effectively live inside an EC2 instance.
No single space has seen more movement in the past year than crypto and web3 more broadly. While we had already backed centralized exchanges (Bitpanda) early on and will continue to do so, we think that the frontiers of what will be possible are shifting. Consumer grade DeFi is just around the corner (Unstoppable Finance is working on exactly this) and we believe there will be a huge number of applications, developer tools and software infrastructure required as core market enablers. Whether it is market data for enterprise (Kaiko), crypto on-ramps (Ramp Network), on-chain analytics (Dune Analytics), middleware (WalletConnect) or developer tools (Tenderly), we don’t quite know where the web3 journey will take us... but we are certainly along for the ride.
Beyond the pandemic, the other monumental event of our lifetime is undoubtedly the climate crisis. Over the past few years in particular, it has become apparent that no aspect of our planet will be spared if we continue emitting carbon at current levels. But in response, a plethora of companies tackling all elements of the emissions challenge have emerged. Carbon accountants like Planetly help companies understand, reduce and offset their carbon emissions. Offset monitoring like Sylvera ensures clarity and trust in carbon markets. ESG reporting tools like Apiday or Nossa Data facilitate and automate the collection and reporting of non-financial data. There are thousands of different avenues through which we need to both reduce emissions and take carbon out of the atmosphere if we want to stay even close to on track for 1.5 degree warming. We believe SaaS applications can and will play a significant role in this.
Lastly, we think that SaaS will continue to change and improve how most people in horizontal functions conduct their day-to-day. In HR, the first wave of tools brought us workflow automation (Personio). The next frontiers will be culture (Platypus), D&I (Diversio), and benefits (Cobee). In finance and accounting, the days of clunky legacy systems are numbered. The next breed of forecasting and planning tools (Abacum, Pigment) will be collaborative and deliver real-time insights (Airbank). Receivables and payables teams can plug into existing accounting ledgers, automatically extract data from PDFs and have fraud detection built right in (Nook). The entire operational stack will continue to be elevated feature by feature. This is a trend which the emergence of cloud software started in the early 2010s and which we believe will continue for the foreseeable future.
SaaS continues to excite us, whether it’s in SMEs or enterprise, climate or crypto. Over the next few weeks, we will dive into some other aspects of our SaaS & Infra thesis. In the meantime get in touch with comments, feedback or amazing companies at email@example.com or find us on Linkedin and Twitter: @fredhgnr, @DominikTo, @smi, @AudreyHandem, @YTR4N_ and @markus0lang).