How Bigger ACVs Are Bringing Direct Sales Back To Vertical AI

Overview

In a guest essay, Defy general partner Medha Agarwal argues that larger deal sizes are bringing direct sales back to vertical AI startups. Because vertical AI products replace labor rather than software, their annual contract values have jumped to 6- and 7-figure deals, paid partly out of headcount budgets rather than only software budgets. That economics shift makes high-touch direct sales viable further down market, and Agarwal highlights two channels driving distribution: private equity networks and industry conferences.

Key Takeaways

Vertical AI products often replace labor, not software, so spend comes partly from headcount budgets.
Annual contract values have jumped to 6- and 7-figure deals, changing the go-to-market motion.
Larger ACVs make direct sales viable further down market where old SaaS economics did not allow it.
Private equity networks are a leading distribution channel, with one PE intro surfacing many portfolio leads.
Sector and function specific conferences are a second valuable channel.
Rollup-heavy industries like healthcare services, dental, MSP, accounting, legal, and home services see strong success.

Stats & Key Facts

#ACVs in the 6- and 7-figure range

How Bigger ACVs Are Bringing Direct Sales Back To Vertical AI

Why vertical AI is different from vertical SaaS

The author defines a new category based on labor substitution.

›For over a decade, customers bought vertical SaaS with modest ACVs and capped acquisition cost.
›With AI, many products are usage and outcomes based rather than SaaS.
›They replace labor, not software, so spend comes partly out of headcount, a much larger line item.

Defy calls this category vertical AI. Because the value framing shifted from subscription pricing to labor substitution economics, ACVs have jumped meaningfully to 6- and 7-figure deals.

Why direct sales is back

The economics that pushed SaaS toward product-led and SDR-led motions have changed.

›Direct sales historically only worked at true enterprise scale because an AE's time was not warranted for smaller ACVs.
›With 6- and 7-figure ACVs, founders have room to invest in winning each logo.
›Smaller businesses are spending relatively more with quicker sales cycles, enabling higher volume.

AEs, in-person sales motion, and other tactics that did not pencil under old SaaS economics now work further down market.

Channel one: private equity and heads of AI

PE firms are actively pushing AI adoption across portfolios.

›Many PE firms push portfolio companies to drive efficiency with AI, sometimes creating a new internal role.
›These AI partners collect learnings, find good AI tools, and connect them into the portfolio.
›Sometimes the firm itself is the buyer; more often it forwards information to company executives.

One introduction to a PE firm can surface many qualified leads across portfolio companies. Companies usually land one customer first, then positive feedback travels laterally to peer companies and back up to the PE investor, who introduces the vendor to others.

Channel two: conferences

Sector and function specific conferences drive distribution.

›The author cites conferences as incredibly valuable for vertical AI distribution.
›They are distinct from the PE channel but companies succeed with both.
›Conferences are framed as a second proven path to reach buyers.

Where this works best

Certain industries fit the PE channel especially well.

›Rollup strategies are common in these sectors.
›Examples include healthcare services, dental, MSP, accounting, and legal.
›Financial advisory, insurance brokerage, home services, and industrial are also cited.

Frequently Asked Questions

What is vertical AI according to the author?

Defy uses vertical AI to describe companies whose products are usage and outcomes based and replace labor rather than software, drawing spend partly from headcount budgets.

Why have annual contract values grown?

Because the value framing shifted from subscription pricing to labor substitution economics, ACVs have jumped to 6- and 7-figure deals.

Why is direct sales returning to vertical AI?

Larger ACVs give founders room to invest in winning each logo, so high-touch direct sales now works further down market where old SaaS economics did not allow it.

How does the private equity channel work?

One introduction to a PE firm can surface many qualified leads across its portfolio, with positive feedback traveling laterally to peer companies and back to the investor, who makes further introductions.

Which industries fit this approach best?

Industries where rollup strategies are popular, including healthcare services, dental, MSP, accounting, legal, financial advisory, insurance brokerage, home services, and industrial.

The author argues that larger vertical AI deal sizes have made direct sales, PE networks, and conferences the new distribution playbook.