I think the main difference is that software has high gross margins (lower in SaaS than the old on-premise model). But there are plenty professional service businesses that are not regional. Even manufacturing businesses are not geography based. Software can also be highly capital intensive, it's just the growth capex shows up on the income statement rather than in fixed assets. Also in software, depending on the company, you will need to tightly manage product development otherwise you don't scale margins. This happens in private and public companies alike.

Many of the good aspects of software can show up as liabilities. The faster-growth, higher-margin characteristics can flip overnight. Nate is completely right about keeping an eye on product.

I believe it's harder to find a true moat around a software product. Given the global nature of cloud software, it's difficult to size-up the competition the way you would in a local market bounded by physical constraints. All said, I am still pursuing SaaS, but I am clear-eyed about those risks.

If you do it, make sure your management team includes experienced engineers or product people with broader market knowledge. They should to be able to react to external developments, quickly.

If you are interested in buying search fund sized (1-5MM Ebitda) check out Constellation Software. They have a really interesting strategy of a hub & spoke style model of acquiring LMM businesses. Above the Constellation range gets very competitive with strategics and big software PE shops: Vista, Thoma Bravo, etc.

Software is not easier to scale when you account for acquisition costs. Depending on your pricing strategy, your sales cycle will determine your operating cash flows.

Product pricing below $500 may have high acquisition costs and pricing above $5000 will have longer sales cycles.

Software is not necessarily easy to scale. It's your access to the TAM which is way higher in a software business, and some initial success can open doors to raising money in scaling further. But do not forget that your competitors have the same open field, and even if you scale a new entrant can beat you quickly if the barrier to entry is low (which is common) and they get their hands in some investment $.

Software is easier to scale than a typical manufactured product. Once developed your cogs decreaes and you have extremely high margins with software. In addition, it is much easier to push bug fixes and new features out with software or even a saas business as opposed to have to build a new product. Lastly, if you sell licenses to your software that allow free updates over a period of time you now have a great renewal base to sell to.

My question is who is trying to sell a scalable software business as a "search style." Seems like this is hard to find and usually priced out of this style of financing.

As someone who has spent a decade in the software business, two comments: i. Anticipate a high multiple on any tech company (including the not-so-profitable ones), and ii. not all technology solutions are scalable - I personally am aware of tech companies that ran out of juice becuase the underlying software (the product) was bloated and highly complex and expensive to implement with clients....as a searcher I have come across 25+ yr old companies that have revenues of less than $2MM - clearly, they were not able to scale over the last two and a half decades...;maybe some issues with sales and marketing, but to assume that all tech is scalable would be incorrect. happy to chat more offline.

This is an interesting idea because most SaaS platforms don't qualify for SBA - also in general technology platforms trade at higher multiples so it's an interesting quagmire. Also, unless you have a technical background or a CTO type partner managing the platform/product growth will very challenging. Just some thoughts coming from a tech background...

I think the best SaaS deal will almost always top the best traditional deal. Management, costs, infrastructure, TAM, everything should be easier. The downside are costs+limitless competition.

It depends on your background and expertise. I don't have a software background, so I'm sticking with traditional.

Happy to chat. I spent many yrs in the Bay Area. Recently worked at an a16z company on the IR/strat side.

It not only depends on your experience, but on your personality as well.

Grant-- I have a growth-stage software background and am currently searching in software. DM me if you want to talk.