The Best SaaS Investment Ever and Why It's Bullish for AI
In 2008, Emergence Capital invested $4m in the Series A round of an early SaaS startup called Verticals onDemand. Five years later, having raised no additional capital, the company went public. After the first day of trading, Emergence’s shares were worth $1.3b - a 325x return in five years! The best SaaS investment of all-time.1
A few years after Emergence invested, Verticals onDemand renamed itself. Its first vertical, life sciences, had taken off. Today, Veeva Systems is the leader in SaaS solutions for the life sciences industry. A second vertical wasn’t necessary.
The name change has long been forgotten, but I think it’s actually quite significant today, in the opening stages of the platform shift to AI. Why?
Veeva (Verticals onDemand) was founded in the early days of the last major platform shift in the software industry, from on-premise software to SaaS. At the time, the market size for SaaS was an open question. VentureBeat wrote an article about the A round with the headline:
“Verticals onDemand launches new CRM company, but very late”
They were “very late” to the market. That was the view of a leading tech publication. Circa 2008, the consensus was that SaaS didn’t enjoy much market opportunity.
As its name implied, the company’s initial strategy was to build software for multiple verticals. A single vettical market could not be big enough to support venture-scale growth, right? In other words, even the founders themselves significantly underestimated the size of the market opportunity. To be fair, Veeva was not alone; there were countless other SaaS markets where TAMs turned out to be dramatically larger than expected.
Today, as the enthusiasm of founders and VCs shifts to AI, a major question emerges: how big will AI markets be? With the early days of SaaS as a major point of reference, we are happy to wager that they will be much larger than most suspect.
P.S. Along with Veeva, one of the other most severely underrated SaaS startups has been Canva. I had the chance to do a deep dive on Canva with the great Shomik Ghosh of Boldstart Ventures in his Software Snack Bites podcast. Please check it out!
That translates to an IRR of over 200%. Today, those shares would be worth ~$7.3b.
Veeva is a great demonstration of what Sandy's said to me before: "great products and great founders create their own TAM".
A reminder of of Patio11's law: "The software economy is bigger than you think, even when you take into account Patio11’s Law."