Valuation Reality Check: Why Vertical SaaS (3.3x) Is Outperforming Horizontal (3.0x)

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Welcome to the 169th edition of The Growth Elements Newsletter. Every Monday and sometimes on Thursday, I write an essay on growth metrics & experiments and business case studies.

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October 2025 valuation data is in: Vertical software trades at 3.3x NTM revenue while horizontal SaaS sits at 3.0x.

That 10% gap isn't noise; it's the market telling you something critical about where value lives.

New Valuation Reality

Fresh October 2025 multiples:

• Vertical software: 3.3x next-twelve-months revenue

• Horizontal SaaS: 3.0x NTM revenue

• AI-enabled vertical tools commanding even higher premiums​

Why this matters:

• 10% valuation premium translates to millions in exit value

• Public market signals filter down to private valuations

• Investors increasingly pay premiums for specialisation

What's Driving The Vertical Premium

Market dynamics from my operator experience:

• Horizontal SaaS faces commoditization pressure

• Generic tools compete on price; vertical tools compete on outcomes

• Industry-specific workflows create natural switching costs

The AI disruption factor:

• Horizontal tools risk replacement by AI agents

• Vertical solutions with deep workflow integration survive AI disruption

• Specialised industry knowledge becomes the moat​

Customer willingness to pay:

• Vertical solutions solve industry-specific pain points

• Compliance and regulatory requirements create buyer urgency

• Domain expertise commands premium pricing

Strategic Implications for Operators

If you're building horizontal:

• Focus on becoming the category leader quickly

• Build platform effects and network moats

• Prepare for margin compression and consolidation battles

If you're building vertical:

• Go deeper, not wider in your chosen industry

• Build industry-specific features that generic tools can't replicate

• Price on outcomes, not features

If you're choosing between vertical and horizontal:

• Consider your team's domain expertise

• Evaluate defensibility in each approach

• Factor in AI disruption risk for horizontal plays

Operator Framework for Vertical vs Horizontal

When to go vertical:

• You have deep industry expertise or relationships

• The industry has unique workflows/compliance requirements

• Horizontal incumbents serve the industry poorly

• You can charge 3x+ more than horizontal alternatives

When to stay horizontal:

• You're building platform infrastructure (APIs, dev tools)

• Network effects become stronger with more users

• You can achieve category dominance through speed

• The problem is universal across industries

Red flags for horizontal plays:

• Competing primarily on price vs. incumbents

• Feature parity achieved by competitors within months

• No clear path to network effects or data moats

• AI could easily replicate your core functionality

What The Data Tells Us About Execution

Vertical winners execute differently:

• Sales cycles focused on industry ROI, not generic productivity

• Marketing to industry conferences, not general SaaS audiences

• Product development driven by regulatory/compliance needs

• Customer success measured by industry-specific outcomes

Horizontal winners need different advantages:

• Speed to market and category creation

• Platform integrations that create switching costs

• Network effects that improve with scale

• Data advantages that compound over time

2026 Strategic Implications

The valuation gap will likely widen:

• AI continues to threaten horizontal productivity tools

• Regulatory complexity increases demand for specialised solutions

• Economic uncertainty drives buyers toward proven ROI

For operators and founders:

• Vertical specialisation becomes table stakes for premium valuations

• Generic SaaS increasingly competes on price

• Industry expertise becomes a strategic asset, not just nice-to-have

Investment implications:

• VCs increasingly favour vertical plays for Series A+

• Horizontal startups need a faster path to category dominance

• Exit strategies should factor in valuation multiple differences

Bottom Line

The market is rewarding specialisation over generalisation.

A 10% valuation premium today becomes a 30%+ premium at exit when compounded over growth cycles.

Choose your positioning carefully. The market is telling you where the value lives.

If you're building horizontal, you better be building something truly defensible. If you're building vertical, you better be going deep enough to matter.

The middle ground is disappearing fast.

That's it for today's article! I hope you found this essay insightful.

Wishing you a productive week ahead!

I always appreciate you reading.

Thanks,
Chintankumar Maisuria