So we were back on 20VC this week in our Latest in Tech deep dive with Harry Stebbings and Rory O’Driscoll of Scale: “The State of SaaS 2025: IPOs, AI, and the Coming Shakeout”
The IPO Window Is Cracking Open (Finally)
Chime’s $1.67B revenue IPO is the canary in the coal mine. After years of private market purgatory, we’re finally seeing real liquidity events return. But here’s the kicker – Chime is going public at a likely roughly $10-12B valuation after raising at $25B in their last private round.
What this means for your startup: If you’re doing north of $500M in revenue with 30%+ growth, the IPO window is officially open. But you better be prepared for a haircut if you raised at frothy valuations in 2021-2022.
The Late-Stage Investor Protection Ratchet: A Great Deal for Investors?
Here’s something most founders don’t understand about those big late-stage rounds: the smart money has ratchet protection. When Sequoia and Tiger invested at Chime’s $25B round, they may have negotiated terms that protect them if the IPO comes in lower — although it’s not clear from the legal docs they did in this case.
Translation? If Chime goes public at $10B instead of $25B, those late-stage investors might get as much as twice as many shares to make up the difference.
But does it really matter? It’s just a price adjustment after all, notes Jason. And even if their price is adjusted to the IPO price, that’s still a 0% gain. After 4+ years.
The AI Bubble Is Real — And That’s Not Necessarily Bad
We’re living through the biggest AI deployment in corporate history. At the recent SaaStr 2025 event, CMOs were literally asking “How fast can I replace the bottom 30% of my team with AI?”
But here’s the reality check every AI startup needs to hear: there are over 200 note-taking apps alone. The AI tool proliferation is reaching perhaps absurd levels.
The “Run Fast” Deal Phenomenon
Smart investors are calling certain AI deals “run fast” opportunities – companies that need to sprint for 2-3 years to build defensible moats before their core AI functionality gets commoditized.
The playbook that’s working:
- Use AI as your wedge product
- Get distribution quickly while you have that “AI premium”
- Build a stack of related functionality
- Become platform-sticky before competitors catch up
Companies like Gong have executed this perfectly – they started with voice recording but have evolved into comprehensive revenue intelligence platforms.
Fund Returners Aren’t Enough Anymore
Here’s a brutal truth bomb from Jason: “A fund returner just returns the fund –once. It’s not enough for a seed fund in the end.”
The math is getting harder for early-stage investors. With companies staying private longer and exit values concentrating in fewer mega-outcomes, you need 10x+ wins, not 3x returns.
But the very, very best ones compound … almost forever. The top 20% that IPO will more than cover the mediocre returns from the rest.
The New Exit Reality
Analysis shows that 99th percentile exits have grown from $1.4B (2005-2009) to $10.2B in recent years. But here’s the catch – this isn’t because everything is getting better. It’s because the best companies are staying private longer, allowing more compounding to occur.
For founders: If you’re sitting on a $2B+ valuation in secondaries, seriously consider taking money off the table unless you’re 100% sure you’re the next SpaceX.
The Great SaaS Shakeout Is Coming
Companies are about to become “just databases” overnight. With tools like Model Context Protocol (MCP) allowing AI agents to pull data from any application, traditional SaaS interfaces become less relevant.
Think about it: If I can use AI to extract all the structured data from HubSpot and combine it with my own models, what’s HubSpot’s value proposition?
Who Survives the Database-ification
The winners will be companies that:
- Build true workflow automation, not just better interfaces
- Create network effects and switching costs beyond data lock-in
- Continuously add value through intelligence and insights
The cautionary tale: Chegg went from $12B to $95M market cap as students realized ChatGPT could answer their homework questions better than Chegg’s database.
The Anthropic Growth Story
Let’s talk about real AI success: Anthropic’s run rate grew from $1B to $2B in a single quarter (Q4 2024 to Q1 2025), with 100,000+ customers growing 8x year-over-year.
This validates that the foundation model providers – OpenAI, Anthropic, and maybe 1-2 others – are building truly defensible businesses. They’re the “AWS of AI” and will capture massive value.
What This Means for Your SaaS Business
If You’re Pre-Product Market Fit
- Don’t build another AI wrapper
- Focus on solving real workflow problems
- Plan your defensibility strategy from day one
If You’re Growing (>$10M ARR)
- Evaluate which functions AI can augment vs. replace
- Start planning your AI integration strategy now
- Consider secondary liquidity if you’re north of $1B valuation
If You’re Scale Stage (>$100M ARR)
- The IPO window is open – seriously evaluate going public
- Build AI capabilities that enhance your core product
- Prepare for margin pressure as AI reduces need for human workers
The Rippling vs. Deel Legal Battle: A Masterclass in Trade Secret Protection
One of the most fascinating discussions from the podcast centered on the ongoing legal battle between Rippling and Deel – and what it teaches every SaaS founder about competitive dynamics and intellectual property protection.
The Facts (As We Know Them)
Rippling has filed a lawsuit against Deel alleging trade secret theft, with some serious accusations flying. According to the discussion, there are allegations that Deel hired employees from Rippling who may have brought proprietary information with them.
Jason was unequivocal: “There’s no way they lose. 100%. The facts are too bad. There’s no way they lose 100%. They stole trade secrets. This is a classic case.” But the damages are a bit … murkier.
Why Counter-Claims Are Actually a Bad Sign
Here’s something most founders don’t understand about litigation: counter-claims often signal weakness, not strength. When you’re in the right, you typically just defend and focus on running your business.
As the hosts explained, counter-claims serve a specific legal purpose – they can offset damages even if they couldn’t stand as independent lawsuits. If Rippling wins $1B in damages, Deel’s counter-claims might reduce that to $100M even if the counter-claims themselves are weak.
The telling quote: “If you’re 100% in the clear, you just say not guilty. You just ignore it and as a CEO, you go back to work. You don’t flee to other countries.”
The Litigation Economics Every CEO Should Understand
Here’s the brutal truth about startup litigation that every founder needs to hear:
The $2 Million Rule: According to the podcast, lawyers start changing their tune about your “strong case” right around $2 million in legal expenses. What starts as “you have a great case” becomes “well, it’s really a 50/50 bet” as you approach trial.
Why Smart CEOs Settle: Even when you’re in the right, litigation is almost never worth it. The stress, cost, and distraction typically exceed any potential upside. As one host noted: “If I was the CEO of Deel, I’d be like how much money does it take to settle this thing by Friday?”
Microsoft’s VS Code Gambit: When Giants Fight Back
The other major competitive story from the podcast was Microsoft’s decision to open-source VS Code – a move that directly targets hot startups like Cursor and Windsurf.
Reading the Tea Leaves
This is actually a sign of Microsoft’s weakness, not strength. As the hosts pointed out, when you have true dominance, you don’t need to give away your premium products. Microsoft wouldn’t open-source Windows because they still have pricing power there.
The fact that they felt compelled to open-source VS Code shows that Cursor and Windsurf were applying real competitive pressure. For the startups, this is validation that they’ve built something threatening to a $3 trillion company.
The David vs. Goliath Playbook
When incumbents fight back aggressively, it often creates opportunities for nimble startups:
What Cursor/Windsurf should do now:
- Double down on developer experience – Microsoft will always be slower to innovate
- Build community and ecosystem – open source creates opportunities for differentiation
- Focus on specific workflows – be 10x better at something specific rather than trying to be everything
The broader lesson: When giants start copying you, you’ve validated product-market fit. The question becomes whether you can out-innovate them or find a defensible niche.
The Bottom Line: Survival Strategies for 2025+2026
We’re in the middle of the biggest technology shift since the internet, combined with the most competitive funding environment in a decade. The companies that survive and thrive will be those that:
1. Build Real Defensibility
- Move beyond simple AI wrappers to genuine workflow automation
- Create switching costs through integrations and network effects
- Own proprietary data that gets better with scale
2. Execute the “Run Fast” Strategy
- Use AI as a wedge to get initial traction
- Build comprehensive platforms before competitors catch up
- Price aggressively to gain market share while you have advantages
3. Master the New Fundraising Game
- Understand what protections you’re giving late-stage investors
- Take secondary liquidity when valuations are high
- Don’t give away more equity than necessary for “AI premium” rounds
4. Navigate Competitive Dynamics Smartly
- Protect your IP and trade secrets religiously
- Hire ethically but aggressively from competitors
- Settle legal disputes quickly unless you’re 100% in the right
5. Prepare for the Talent Shift
- Plan for 20-30% productivity gains through AI
- Hire for uniquely human skills
- Invest in AI tools that augment rather than replace
The winners will be companies that use these disruptions as opportunities rather than threats. The losers will be those that stick their heads in the sand and hope the disruption passes them by.
