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Andrew was most recently at I-DEV International in Perú providing investment banking and strategy consulting services to social enterprises operating in emerging and frontier markets. Prior to I-DEV, he was a VP at HSBC in New York, focused on debt transactions for clients in the U.S. retail sector. He also spent time at the Grameen Foundation in Colombia building a credit risk tool applicable to smallholder coffee farmers. Andrew graduated from Tufts University with a double major in economics and international relations.

Investment Director

Andrew Hallman

At <a href="https://polymathv.com/" target="_blank" rel="noopener noreferrer">Polymath</a>, we built a Latam-specific framework for evaluating an industry's likelihood of adopting Vertical Software solutions. This framework is broken into six categories: 1) Fragmentation, 2) Margins, 3) Revenue mix, 4) Value-add of software, 5) Range of intervention, 6) Monetization beyond a SaaS fee, and 7) Incumbency. We are sharing an overview of the framework as well as a deep dive on two of the categories: Fragmentation and Monetization.<h3 style="margin-left:0px;">Framework Overview</h3><figure class="image"><img src="/uploads/drew_bc9aa17ccf.png"></figure><h3 style="margin-left:0px;">&nbsp;</h3><h3 style="margin-left:0px;">Framework Deep Dive</h3><ul><li>Fragmentation: Conventional wisdom says that the more fragmented the industry, the more attractive it is for Vertical Software solutions. Latam is more nuanced and requires a deeper understanding of an industry's fragmentation dynamics. Willingness to pay ("WTP") for software by MSMEs is limited, and virtually non-existent for Micro and Small enterprises. Therefore, industries with high fragmentation on both the supply and demand sides are highly unlikely to adopt software. We identified two fragmentation archetypes that we believe are more likely to adopt Vertical Software solutions in Latam:</li><li>Fragmented supply with consolidated, enterprise demand. This fragmentation dynamic is attractive because the large enterprise buyers are willing to adopt technology and then force their smaller suppliers to adopt it. The Auto Repair industry is a great example of this. In Mexico, enterprise vehicle fleets typically work with hundreds of micro and small independent auto repair shops for their vehicle maintenance. These fleets are willing to pay for software that helps them manage, automate, and control the vehicle maintenance process, and can make software adoption by the shops a condition of working with them. Autolab, a Polymath portfolio company, has built a Vertical Software solution for this industry in Mexico and Colombia.</li><li>Fragmented, but with lots of medium-sized players. Medium-sized companies in the right industries, such as Manufacturing and Education, tend to exhibit a reasonably high WTP for software. Vertical Software companies such as Mattilda and Cometa are serving K-12 and Universities in the Education space in Mexico, and Pulsar and Allie are building Vertical Software solutions for the Manufacturing space.</li></ul>&nbsp;<ul><li>Monetization beyond a SaaS fee. In Latam, the ability to monetize beyond a SaaS fee is critical to a Vertical Software solution's ability to succeed because of the limited WTP for software in the region. We will go as far as to say that it would be impossible for a Vertical Software solution to become a unicorn in Latam without having multiple monetization pathways. Examples of these monetization strategies are embedded finance, advertising, transaction fees, charging a commission for demand generation, and payment fees, among others. Vertical Software unicorns in the US have employed embedded finance (Toast &amp; Shopify), advertising (Pepper &amp; Provi), and commission for demand generation (Faire &amp; Novi) to increase ACVs and improve customer retention. Manufacturing is a great example of an industry in Mexico that fits this bill. A Vertical Software solution can monetize via embedded finance, materials supply, and demand generation, among others.</li></ul>&nbsp;<h3 style="margin-left:0px;">Industries</h3>We applied this framework to many different industries in Mexico to identify verticals and sub-verticals that we believe could benefit from and vigorously adopt Vertical Software solutions. Based on our research, we found that the Manufacturing, Trucking, Construction, Private Security, and Pharmacy industries in Mexico have the right characteristics to adopt Vertical Software solutions. In the following posts, we will share our research and insights into these massive, foundational industries in Mexico.&nbsp;<h3 style="margin-left:0px;">We want to build with you!</h3>If you are a founder who is building or thinking about building a Vertical Software solution for the LatAm market, we would love to hear from you. Please reach out via email at <a href="mailto:startups@polymathv.com">startups@polymathv.com</a> or via LinkedIn by writing our Investment Director <a href="https://www.linkedin.com/article/edit/7201360870705086464/?author=urn%3Ali%3Afsd_company%3A3048239#">Drew Hallman</a>. &nbsp;

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Vertical Software Series - Post #3: Polymath's Vertical Software Framework

Vertical Software Series - Post #2: Vertical Software will take LatAm by stormAt <a href="https://polymathv.com/" target="_blank" rel="noopener noreferrer">Polymath Ventures</a>, we are excited about the Vertical Software solutions that are beginning to take hold in LatAm, but it is still early days, and we are even more excited about what's to come over the next few years for the following reasons:<ul><li>Blue Ocean. In other regions, such as the US, a vast majority of foundational industries consolidated and modernized decades ago, adopting technology in the process. The new Vertical Software opportunities in these regions are therefore limited, with most new opportunities in very niche industries such as Roofing, Extermination, Airplane Maintenance, etc, with limited TAMs. Meanwhile, in LatAm, there are many $100B+ foundational industries that have yet to modernize and/or consolidate. They remain fragmented, traditional, and analog. Vertical Software as a business model is very good at dealing with the modernization and consolidation of industries, representing a generational opportunity to build software solutions that modernize foundational industries such as Manufacturing, Trucking, Construction, and Health Care.</li><li>LLMs. In earlier tech eras, Vertical Software was exclusively adopted by companies in consolidated industries with modern tech stacks - structured data in systems of record and databases. Very few industries in LatAm fit this bill, which is one of the main reasons that scarce Vertical Software solutions have taken hold to date in the region. Today’s Vertical Software business model can use LLMs to handle workflows with unstructured data, meaning AI can be the missing piece that finally brings complex, legacy industries into the modern era.</li><li>From SaaS to Software. Low ACVs are a Vertical Software killer, making it very difficult for the unit economics to work. Most industries in LatAm suffer from this problem given MSMBs' limited willingness to pay ("WTP") for software. The evolution from offering pure software and charging a simple SaaS fee to a much wider ecosystem of solutions solves this problem. Through embedded finance, advertising, transaction fees, charging a commission for demand generation, and payment fees, among others, Vertical Software solutions are able to significantly increase ACV, which is critical for the success of this model in LatAm.</li><li>Enablers. Evolving from pure SaaS fees to alternative monetization strategies requires many enablers. Those enablers are taking form in LatAm, including SMB digitization, open finance, and payments and banking infrastructure, among others.</li></ul>&nbsp;<h3>What's next?</h3>Please be on the lookout for post #3 which will be released next week and will reveal our framework for evaluating an industry's likelihood of adopting Vertical Software solutions.<h3>We want to build with you!</h3>If you are a founder who is building or thinking about building a Vertical Software solution for the LatAm market, we would love to hear from you. Please reach out via email at <a href="mailto:startups@polymathv.com" target="_blank" rel="noopener noreferrer">startups@polymathv.com</a> or via LinkedIn by writing our Investment Director <a href="https://www.linkedin.com/article/edit/7201360870705086464/?author=urn%3Ali%3Afsd_company%3A3048239#" target="_blank" rel="noopener noreferrer">Drew Hallman</a>.<h3>Check out the full Vertical Software Series on our website:</h3><a href="https://polymathv.com/library" target="_blank" rel="noopener noreferrer">https://polymathv.com/library</a>

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Vertical Software Series - Post #2: Vertical Software will take LatAm by storm

Based on the success of our portfolio company <a href="https://flotas.autolab.mx/" target="_blank" rel="noopener noreferrer">Autolab’s Vertical Software</a> solution for the extremely messy and informal Auto Repair industry in Mexico and Colombia, we were inspired to explore the attractiveness of this approach on other large, fragmented, and informal industries in LatAm. We took our learnings from the Autolab experience and transformed them into a LatAm-specific Polymath framework for evaluating an industry’s likelihood of adopting Vertical Software (or Vertical SaaS, as it is more commonly known) solutions. We applied our framework to many different industries, and we are extremely excited about the potential for this business model to bring many massive, foundational industries in LatAm into the digital age and become $1B companies while doing it. We'll share our framework, research, insights, and findings via a series of posts called the Vertical Software Series. In this first post, we'll start by defining Vertical Software so that we are all on the same page.<h4>What is Vertical Software?</h4>Unlike Horizontal Software (or Horizontal SaaS, as it is more commonly known), which offers generic solutions that can be used across various industries, Vertical Software solutions are designed to address the unique requirements, workflows, and challenges of specific verticals or industries. Vertical Software solutions typically include the following characteristics: (1) Industry-specific features with specialized tools, integrations, and customization options to address specific industry requirements, (2) Industry-specific knowledge of regulations, compliance standards, best practices, and emerging trends, and (3) Integrations with other industry-specific software tools, platforms, or data sources to streamline processes, improve efficiency, and enhance the overall user experience. Examples of successful Horizontal Software companies include Salesforce, Adobe, Slack, and Zoom. Examples of successful Vertical Software companies include Toast, ServiceTitan, Procore, and MINDBODY.<h4>What are the advantages of Vertical Software?</h4>Why build a software solution specifically tailored to one industry, which will by definition have a much smaller TAM than a horizontal solution? Because it can solve the specific needs of that industry better than a horizontal solution, resulting in a number of advantages:<ul><li>Higher market penetration, meaning that although TAM may be smaller, SOM may still be very large</li><li>Higher customer retention rates thanks to the stickiness that comes from being able to focus on one vertical and reach deep into the workflows of the business</li><li>More effective and efficient GTM thanks to 1) a high referral rate from happy and loyal customers and 2) hyper-focused marketing efforts on a single industry versus being spread thin over many different, unrelated industries. Studies have shown that a vertical approach can lead to a CAC that is up to 8x cheaper than a horizontal approach</li><li>Increased upsell opportunities within the customer base, leading to a higher ACV</li></ul>&nbsp;<h4>What are the tradeoffs for Vertical Software?</h4>Vertical Software solutions also have their tradeoffs:<ul><li>Limited TAM. We already mentioned this can be offset by higher market penetration, but the TAM still needs to be big enough to make the juice worth the squeeze</li><li>Industry risk. A focus on a single industry makes Vertical Software companies more vulnerable to economic downturns, regulatory changes, or industry-specific disruptions.</li><li>Customization complexity. The customization required to meet the unique needs of an industry can be complex, time-consuming, and costly. The positive side of this is that a successful Vertical Software solution has a significant competitive moat.</li></ul>&nbsp;<h4>What's next?</h4>Please be on the lookout for post #2 which will be released next week and will cover why we're excited about the potential of Vertical Software solutions in LatAm.<h4>We want to build with you!</h4>If you are a founder who is building or thinking about building a Vertical Software solution for the LatAm market, we would love to hear from you. Please reach out via email at <a href="mailto:startups@polymathv.com" target="_blank" rel="noopener noreferrer">startups@polymathv.com</a> or via LinkedIn by writing our Investment Director <a href="https://www.linkedin.com/in/andrewhallman1/" target="_blank" rel="noopener noreferrer">Drew Hallman.</a>*In the market, "Vertical SaaS" is a much more common nomenclature than "Vertical Software", however, we believe the latter better describes the solutions that we are seeing and that we hope are built in LatAm because it is very difficult to scale pure SaaS models in LatAm for many reasons that we will cover in much more depth in subsequent posts.

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