I thought service businesses weren't venture backable?

SPICE CAPITAL PRESENTS: 🔥 🌶 HOT SAUCE 🌶 🔥 

Here at Spice Capital, we’re focused on making big bets in areas primed for rapid change. To do that, we believe it’s important to stay up to date with what some of the most exciting thinkers and builders are saying day-to-day as well as mixing up your content intake with some fun from the corners of the internet. We know there’s a lot of noise and the space can feel overwhelming. Don’t worry! We’re here to be the Hot Sauce in your bag so you can make sure you always keep things spicy!

2025 zeitgeist includes…..SERVICE BUSINESSES

You wouldn’t dare pitch your service startup to a VC in 2015.

Fast forward a decade — and not only is it fine, it might actually be hype.

Credit Where Credit Is Due:

I don’t think tech people undertand that service businesses have always been massive. Just look at the numbers:

So why is now their moment?

1. Palantir Proved the Scale of Tech-Enabled Services

Palantir showed that service-heavy revenue can still command strong public market multiples (As of 3.11.2025 Palantir had a P/E ratio of 389.21). Palantir closed out 2024 with $2.87 billion in annual revenue, representing 28.79% year-over-year growth. Their approach? Win huge government contracts and wrap software in consulting. High-margin? Not always. Scalable? Turns out — yes.

Palantir started in 2003 and pursued massive government contracts. The government is not an early adopter to tech, but sectors like defense need access to the most sophisticated technology. Companies like Palantir, SpaceX, and Andurill have shown that you can scale private sector startups into the public domain.

This was a venture backed startup (seed round was from IQT + Founders Fund) that is now putting up big top line revenues. Palantir is a positive case study other VC firms and founders can now point to.

Further reading - Liam’s post from 10 mo. ago titled “Software is Dead, Long Live AI Services”

2. Legacy Industries Want Solutions, Not Software

Legacy Industries buy “solutions” not software and those “solutions” are people. Think about it, if you didn’t grow up internet-native you would think that throwing more people on a problem would get it done. Even investors today are habitually trained to pattern match growing headcount as a proxy for success.

Lets say you are selling into traditionally legacy industries such as government, healthcare, or defense. Many of these buyers have IT teams/consulting firms that handle their technology needs - not software engineers. A startup founder recently told me (and I’m paraphrasing their words/butchering it):

The beauty here, is that it’s good for the startup because there’s not much to implement so margins stay high. - Software style margins with Service scale revenue opps!

3. The VC Playbook Is Quietly Turning Into Private Equity

Just as VC firms are becoming private equity-style asset gatherers, service businesses are now considered ‘venture scale. VCs chasing AUM need predictable returns — and ironically, large top line and steady cash flow businesses start to look more attractive when you’re optimizing for scale rather than moonshots. Less emphasis on growth/margins

A few examples that have gotten quite a bit of applause from the Silicon Valley community:

Scale AI - Software plus army of labelers

Mercor, etc. - offshore staffing agency + software

Lessons

1. It shows to never build your business for what’s “Venture backable” bc the zeitgeist could change. 

2. Good opportunity for tech enabled services founders! Go get your bag fast!

I find all of this ironic because it’s literally called SaaS - software as a SERVICE. and the pendulum has fully swung back.

In other Spice Capital news:

GIRL BEER HAS BANNED ALL CONORS