Tech (specifically SaaS) vs. "Traditional" Business Search Considerations
March 10, 2025
by a searcher from Carnegie Mellon University - Tepper School of Business in Pittsburgh, PA, USA
I've been working towards a self-funded search, and although I've mostly been focusing on more "traditional" businesses (i.e., "boring" companies, like HVAC services, distribution, manufacturing, etc.), I've been encouraged to consider companies which compliment my background (I've been a software engineer for nearly a decade with a fair bit of experience in SaaS platforms). I've been looking around, and I'm finding there's quite a few differences in everything from how these businesses are found, how they're evaluated, how I financing works, etc.
So, in general, what major differences between these approaches should I be aware of? Are there any specific resources I should look into? Is there a good way to leverage my background in my search?
from The University of Texas at Austin in Ann Arbor, MI, USA
For financing - early stage SAAS companies typically rely on angel investing or seed equity capital from VC firms. Since these early stage companies are typically asset-light and subject to higher risk, they don't have as much access to lines of credit or debt financing that some of the "traditional" companies do. As SAAS companies reach later stages of profitability and have significant equity cushion, they can raise debt capital.
Since you are a software engineer and have a unique background in other industries - I think this will definitely help you bring both an inside and outside perspective on potential SAAS opportunities. One final point is that the SAAS landscape is dramatically changing. Teams are getting leaner with the advent of AI, competition is greater, and founders are of increasing importance (and their willingness to adapt to customer needs).
in Chennai, Tamil Nadu, India
- Recurring: Think of SaaS where revenue is to a large extent predictable. You're almost 90% sure what the revenue would be in the next quarter.
- Re-occuring: Think of partnerships, regular orders etc, where you know revenue would come, but will not be sure on the value.
- Projects: These are random unless one has built a predictable system to get repeat projects.
In my two decades of experience, I have seen higher valuations being assigned to revenue predictability (leave alone growth). That's why SaaS and tech firms are better in terms of predictability and valuation. Also that's why there is a disproportional capital flowing to these firms.