The Return of Direct Sales in Vertical AI Startups

What happened?

Historically, direct sales were only profitable for large-scale enterprise deals. With vertical SaaS, ACVs were modest, and customer acquisition costs had to stay low, favoring strategies like product-led growth (PLG) or SDR-led approaches. However, with the advent of vertical AI, products are no longer just SaaS: they are usage- and outcome-based, and they replace labor, not software. This has caused ACVs to jump to six or seven figures, as customers use not only their software budget but also their much larger personnel budget.

According to Medha Agarwal, general partner at Defy, this shift makes direct sales viable again even in smaller market segments where they previously didn't work. Founders can now invest significantly in winning each customer, with faster sales cycles and higher volume. In her article on Crunchbase News, Agarwal explains that vertical AI spending comes not only from the software budget but also from the personnel budget, a much larger line item. As a result, ACVs have increased considerably, reaching six- and seven-figure deals. This contrasts with the vertical SaaS era, where ACVs were modest and CAC had to stay low, favoring strategies like PLG, SDRs, and content. Now, with higher ACVs, direct sales become viable even in smaller markets, as the margin allows covering the costs of a field sales team.

Why is it important?

This paradigm shift has profound implications for vertical AI startups. The ability to use direct sales with account executive (AE) teams and field tactics reopens channels that had been sidelined. Additionally, two emerging channels are driving success: private equity (PE) and 'heads of AI.' PE firms are pushing their portfolio companies to adopt AI and have created internal roles to identify and connect AI tools. This creates a direct and efficient distribution route. Agarwal notes that PE firms, managing trillions in assets, are incentivizing their portfolio companies to adopt AI for efficiency, generating significant aggregate demand. Meanwhile, 'heads of AI' are new executive roles in companies that evaluate and recommend AI tools, acting as direct sales channels. This shift is important because it redefines go-to-market for startups: they no longer rely solely on PLG or digital marketing but can build direct relationships with high-spending buyers.

What consequences will it have?

More vertical AI startups are expected to adopt hybrid sales models, combining PLG with direct sales teams. This could increase customer acquisition costs in the short term but also accelerate revenue growth. Competition for direct sales talent will intensify, and startups will need to develop consultative selling capabilities. For investors, startups with effective direct sales strategies will be more attractive, as they demonstrate traction in high-value markets. Agarwal warns that rising CAC is a risk, but the potential return is higher due to elevated ACVs. Additionally, startups will have to compete for account executives with experience in high-value sales, which could drive up salaries and commissions. In the market, we will see segmentation: startups with ACVs below $100,000 will likely stick with PLG, while those above that threshold will adopt direct sales. This could accelerate consolidation in sectors where vertical AI replaces labor, such as customer service, accounting, or legal.

What should readers know?

Founders should reassess their go-to-market: if their ACV exceeds $100,000, direct sales is now a viable option. They should consider partnering with PE firms and creating content for heads of AI. Additionally, labor substitution as a value proposition requires a different pitch than traditional SaaS. For sales professionals, it's time to specialize in vertical AI, a growing market with large potential commissions. Agarwal recommends that founders measure actual ACV, including labor cost savings, and adjust their sales strategy accordingly. She also suggests that startups invest in sales materials that compare the cost of AI with that of the equivalent employee. For investors, startups that demonstrate efficiency in direct sales with high ACVs will be attractive candidates. In summary, vertical AI is rewriting the rules of distribution, and those who adapt quickly can capture significant value in a market that, according to projections, could reach $1.3 trillion by 2032 (Bloomberg Intelligence).