Another Texas VC

I come across a lot of profitable, well run, consulting outfits that make a handsome living for their founders. The founders seem very happy, and are rightly proud of the work that they are doing. As great as these businesses are, they are seldom Venture fundable.Service based businesses are built on paying someone a salary, and then reselling their labor to a client for a higher fee. Thats a difficult model scale. To do so you have to source and train a bazillion consultants, and then are handcuffed by the gross margin you are earning on each of them. Compared to a SaaS model, which can scale infinitely with virtually no costs of goods sold (COGS), or a product model where you are only handcuffed by your production capacity, there is no real contest.A typical situation involves a firm that has both recurring SaaS revenue and Service (Consulting) revenue. When I value the firm I actually strip out all of the service revenue and only evaluate the recurring revenue. Thats because if I ever invested in the firm, I would push the CEO to immediately productize the software offering as quickly as possible so that we can scale the recurring COGS-free SaaS offering. A SaaS model where we perpetually earn money with no marginal expense is a model I will push to fund every time.