Key questions for vertical SaaS business?

Hi,


I'm currently an intern at a PE shop during school year (disregard the throw-away job title). The PE shop likes to assess its interns by giving us an old investment memo every weke on the spot and host a "discussion" on it. Interns are assessed on the quality of the questions, but we don't get to see the memo before hand or know which company might be assigned.


The firm has a lot of money allocated to vertical SaaS, so I'm thinking to study up on this one first. What are some key questions / areas of concern for PE investments in this space? Is it valuation, M&A thesis, or value-creation plan that I should be paying more attention to when coming up with questions on the spot?


Thanks

 
Most Helpful

The most beautiful part of SaaS is how much FCF a company at scale can throw off, especially a company providing infrastructure for others to build on top of. You want to know as much as possible about how sticky customers are, CaC:LTV (basically), churn etc... 

The second part is how entrenched the co is/replicable the business is. Again, if it's provided a platform for others to build on top of...chances are that it's not really going anywhere even if the product is objectively worse than a competitor. Look at some older dogshit ERP systems for a prime example.

 

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