Dave Yuan - A Primer on Vertical Market Software

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, stories, and strategies that will help you better invest both your time and your money.
Invest Like the Best is part of the Colossus family of podcasts, and you can access all our podcasts, including edited transcripts, show notes, and other resources to keep learning at joincolossus.com.

**SPEAKER_2** (1:57)
Patrick O'Shaughnessy is the CEO and founding partner of PositiveSum and the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of PositiveSum or O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of PositiveSum or O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (2:29)
My guest today is Dave Yuan. Dave is the founder of Tidemark Capital, which he started in 2021 after 15 years as a general partner at Technology Crossover Ventures.
Dave has been investing in vertical market software as long as anyone I know and he currently sits on the board of two VMS businesses, Toast and Karbon.
He is the perfect guest to deliver a primer on VMS, which is exactly what we do in this episode. Please enjoy my conversation with Dave Yuan.
So Dave, since we last talked, I spent so much time really after reading so much of your thinking and work on the world of vertical market software. Obviously, there's now a lot of people that have thought about this, investigated VMS businesses, but I think you've been doing and thinking about this as long as anybody and I'm really excited to make this a masterclass at this kind of company building, this kind of investing. We'll stray beyond VMS alone, but you just have this wealth of knowledge that you very kindly have written up and shared with the world. Maybe you could begin by telling us why this topic or this style of business is so interesting to you in the first place.

**Dave Yuan** (3:32)
I think part of this is 10, 15 years ago when we started investing in vertical software is very much a contrarian perspective. And so there's a little bit of me that wants to provide a different perspective in the world. As the world starts to appreciate these businesses a bit more, I think what really has taken over is two things. One is the business models that you can create in some of these verticals and we'll obviously unpack that into a lot of detail. The first wave is really interesting how you go to multi-product, but then what we're starting to see is really businesses that span beyond a single part of the value chain. That's just super interesting to me.
On a more personal level, you just see what these types of software companies can do for their clients. I remember during COVID and I was on the board of toast and we were going through some challenges as restaurants were effectively shutting down. I went to our local downtown and there's a local taqueria called Mama Coco and it's an awesome story. The owner and the manager is taking recipes from his grandmother's recipe book. It's a family business. They're out there building and can't believe they're really struggling and a big part of what allowed them to survive is extending it to online delivery. You see in good times and in bad times what software can do for these owners. If you watch any commercial for a small business software or vertical software provider, it's always the owner on their cell phone on a beach.