Part I: The future of AI is vertical | Bessemer Venture Partners

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Original article

Key takeaway

For entrepreneurs: Vertical AI represents a massive opportunity to create high-value, fast-growing businesses by addressing industry-specific problems that were previously out of reach for traditional vertical SaaS.
For investors: Vertical AI companies are showing unprecedented growth rates and market potential, with predictions of multiple $100M+ ARR companies and IPOs within the next few years.

Summary

Bessemer Venture Partners introduces the concept of Vertical AI, a new class of LLM-native applications that are unlocking markets previously inaccessible to legacy SaaS. These AI-powered solutions are targeting high-cost, repetitive language-based tasks in industries like legal, healthcare, and finance. The article argues that Vertical AI represents an even larger market opportunity than legacy vertical SaaS, with the potential to expand total addressable markets, unlock new functions and verticals, and provide unprecedented value.

Insights

Vertical AI companies are growing at ~400% year-over-year while maintaining ~65% gross margins
Predictions include at least five Vertical AI companies reaching $100M+ ARR within 2-3 years
Vertical AI is able to serve markets previously considered too small for traditional SaaS
AI-enabled tools are gaining traction in industries resistant to previous waves of software adoption
Vertical AI can address both core and supporting workflows within industries
The most attractive markets for Vertical AI are where AI can complete work previously impossible or too expensive with human labor alone

Implications

Vertical AI could potentially capture a market capitalization 10x the size of legacy Vertical SaaS
Early adopters of Vertical AI solutions may gain significant competitive advantages in their industries
Traditional vertical SaaS companies need to consider incorporating AI into their products to remain competitive
The rise of multimodal AI models will further expand the capabilities and applications of Vertical AI