I often think about vertical B2B software—that’s the game I’m in. When a new player enters the space and raises a boatload of cash, I can’t help but wonder if I’m doing something wrong. How can they justify such a raise and valuation with such a finite TAM (Total Addressable Market)? Either my calculations are off, or they’re selling smoke and mirrors to investors about their ability to cross-pollinate verticals or own every segment of the vertical (which is very rare and hard to do).

To win at the venture game, founders must dilute themselves so much that it’s inevitable they’ll bail when the biggest check comes along, due to the pressure of capital to make returns to their LPs. In spaces like accounting or legal, this leaves only six to eight strategic buyers for these companies, plus a number of PE firms willing to scoop them up if the big exit doesn’t come through.

This is why these vertical spaces stay so stagnant. “Today’s rebel is tomorrow’s bureaucrat,” as they say. Ultimately, a founder—staring down the barrel of an exit—can’t say no, given how hard it is. With limited options for exit, they sell to the same old parties. And so the cycle repeats, leaving businesses + users with the same bad taste in their mouths.

Then there’s the rise of “zombie-corns”—startups that have raised a bunch of money at a crazy high multiple that are no longer (or never were) worth that. With the lack of true innovation or profitability they begin to operate much like the larger, bloated organizations they initially sought to disrupt, bogged down by bureaucracy and inefficiency. Instead of driving change, they become part of the stagnant blob, further emphasizing the need for a new approach like interested capital.

What would it look like to have interested capital? Imagine the people who fund the company are its users, with a vested and fiduciary interest in the vendor staying independent forever. Of course, “forever” is a strong word, but you get the drift. What would it look like not to exit to Thomson Reuters, CCH, LexisNexis, and the like? There has to be room for interested capital to enter the discussion as a realistic path for companies to take.

Is this the natural evolution of professional associations that ultimately serve their members rather than pure profit-seeking? More of a true co-op vibe but where by dues are put towards building of tools vs hosting meetings + benchmarking.

At Firm Studio, we’re doing our best to bring products to market alongside firms in the professional services space. It's not easy but its good. We’re building multiple right now and look forward to coming out of hiding in 2025 with some more tools.