The Art of Growth Buyouts: Leveraging Market Distribution for Vertical Software Success
PLUS: Twitter-acquired founder building something new
Deals of the Month
As part of our new initiatives, we’ll be selectively featuring two exciting deals every month that are actively fundraising. If you would like an introduction to them, please feel free to reach out to me at aizuddin@geeksofthevalley.com with your introduction request.
*This will only be accessible to paid subscribers*Here’s a sneak peek of the first deal of the month: a B2C fintech card focused on payment solutions.
Achieved $33 million in ARR within less than one year of operation.
Raising a Series A round.
Currently cash flow positive.
Boasts a user base of over 1.7 million users.
Accepted by more than 44 million merchants worldwide.
Founded by a former Founder of a top 5 global cryptocurrency exchange platform at its peak.
Behind The Scenes
The opportunity for vertical software companies to grow through growth buyouts (GBOs) is substantial, but achieving success hinges on having not only transformational software but also targeting the right markets where the structure supports a M&A strategy. A GBO strategy involves acquiring and integrating other businesses to scale, but the market structure greatly influences how feasible and profitable this approach can be.
There are four key patterns seen in market structures that impact the effectiveness of a GBO:
Right-skewed distribution: This occurs in markets dominated by many small companies, such as HVAC services or single-family property management. In these markets, acquirers are limited to making numerous smaller transactions. This increases transaction costs and can cap the ultimate growth potential, as there are few large companies to acquire. This type of market is better suited for franchising or tech-enabled rollups that focus on reducing acquisition and integration costs, like Teamshares.
Left-skewed distribution: In markets where only large companies dominate (e.g., those driven by network effects), getting started can be prohibitively expensive, and it’s uncertain whether the large players would even be willing to sell. These markets are tough for acquirers because of the high entry barriers and the lack of smaller, more accessible targets.
Bimodal distribution: This is where the market consists of mostly very small or very large companies, with few mid-sized businesses in between, such as in the accounting industry. This structure creates a challenge for scaling through M&A because acquirers either get bogged down in many small deals or are forced to pursue large, complex acquisitions. It combines the drawbacks of both right- and left-skewed distributions.
Normal distribution (the ideal scenario): In this type of market, there is a healthy mix of companies at every size and stage. Acquirers can start small, gradually increase the size of acquisitions, and ultimately scale into a large company. The steady availability of companies to acquire at different stages enables more manageable growth and a clearer path to building a large, profitable business.
To execute a successful GBO, it’s crucial to first build and validate a compelling software value proposition in the chosen market. If the market structure aligns with this strategy—preferably resembling a normal distribution—companies can begin acquiring businesses, transforming operations, and eventually owning the full P&L. This combination of strategic software deployment and market-appropriate acquisitions is key to scaling through GBOs.
For full version of this article, you can read them here.
Geeks of the Week
Startup Name: Atypical AI
Geography: US
One-liner: The generative AI platform for education.
Founder(s) Background: Product Lead of Google AI, Head of Marketing at Quid (merged with NetBase).
Startup Name: Tunic Pay
Geography: UK
One-liner: Tunic Pay is building the governance layer for real-time-payments.
Founder(s) Background: CEO of Casai (backed by a16z, Kaszek), COO of Nova Credit ($130m raised)