Investing in Bootstrapped Vertical Market Software: A Conversation with Lance Fenton

Today’s guest is Lance Fenton, a Partner at Serent Capital, a private equity fund investing in bootstrapped vertical market software businesses. In this episode, Lance breaks down Serent’s software investment thesis, how it evolved over time, and how they think about sourcing, returns, hold period, and the future prospects of these niche businesses.

Lance shares how Serent approaches value creation, the importance of high gross retention, the role of pricing optimization, and how they are responding to AI’s arrival as a threat and opportunity across their portfolio. Lance shares an unusually transparent and candid look at Serent’s direct sourcing model, why they prioritize long-term relationships with founders, and what makes an investment business truly great over decades of success.

Discussion Points:

• Serent Capital’s transition from B2B services to vertical market software
• Why high recurring revenue and high ROIC drive investment decisions
• The adoption curve of Vertical Market SaaS: from on-premise to cloud and beyond
• How shifting to SaaS from on-premise improves net revenue retention
• The role of payments in vertical software and its impact on valuations
• How Serent thinks about downturns and risk in underwriting deals
• The key attributes Serent looks for in vertical software investments
• Why pricing strategy is a critical lever for growth
• The role of AI in the evolution of software businesses
• Why Serent prioritizes direct sourcing over intermediated deal flow
• The challenges and advantages of a long-term sourcing approach
• How PE firms evolve and sustain long-term success

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