We’re sitting on a really big problem in SaaS nobody wants to talk about much.
The exits … are no more.
For years, we had a predictable exit playbook:
- Build a solid SaaS company to $20M-$50M in ARR
- Maintain decent growth, and …
- The buyers would come.
Private Equity would write checks. Strategic acquirers would see you as a tuck-in. VCs knew where to skate the puck. The ecosystem worked.
That playbook has broken down in the Age of AI. Revenue appears less durable when AI puts every deal into play, and growth can’t be counted for decades any longer.
So the exits are … in many cases … gone.
The VC Money Has All Gone to AI
Let’s start with the venture capital side.
In the first half of 2025, the AI funding dominance reached unprecedented levels. Q1 2025 alone saw AI companies attract between $60-73 billion, with AI accounting for approximately 58% of global venture capital. By Q2 2025, AI startups received 53% of global VC spend (rising to 64% in the US).
The scale is staggering: 1H 2025 AI funding ($377B annualized run rate based on the first six months) has already exceeded the full-year 2024 total of $363B. In just the first half of 2025, over 10,400 deals were completed in the AI/ML space, with an average deal size that has exploded to $35.9M—more than double the $17.2M average in the prior year and significantly higher than the $8.2M average in 2023.
For traditional SaaS? The mega-round drought continues. SaaS funding rounds exceeding $100 million have collapsed from 147 deals in 2021 to just 21 in the 12-month period through mid-2025.
Yes, many “AI” deals are AI native versions of classic SaaS plays and players. But that doesn’t really change the math or trends.
If you’re building a solid, profitable, growing SaaS business that doesn’t have “AI-native” fueling outlier growth, you’re competing for a rapidly shrinking pool of capital.
Private Equity Has Cooled Significantly on SaaS
For years, PE was the reliable exit. Hit $20M in ARR, get to 40% growth or Rule of 40, and you’d see term sheets. From 2012 through 2023, nearly every company in the SaaStr Fund portfolio that crossed $20M ARR with solid fundamentals received multiple PE offers. It was the gift of exits that kept on giving. The multiples weren’t always great, but the offers came. Again and again and again.
That’s not happening anymore.
Here’s what the data actually shows for 2025:
Q1 2025 saw 210 enterprise SaaS M&A deals completed, on par with Q4’s 211 deals—a significant jump from Q1 of the previous year’s 165 deals. Private equity-led deal count hit a new quarterly record at 73 deals. That sounds encouraging.
But look closer at the numbers. Total deal value for enterprise SaaS M&A in Q1 2025 was $29.1 billion, down 24.8% quarter-over-quarter from $38.7 billion. And five deals accounted for about half of the total transaction value.
The PE firms are still active, but highly selective:
Thoma Bravo continues to dominate, having made 9 of the public SaaS acquisitions through May 2025. Orlando Bravo, the firm’s founder, closed $42 billion in acquisitions in 2025 including:
- $12.3 billion take-private of Dayforce (their largest deal ever)
- $2 billion Olo acquisition
- $2 billion Verint acquisition (merging with portfolio company Calabrio)
- Portions of Boeing’s Digital division in April 2025
But here’s what’s telling: After 600+ software acquisitions over 30 years, Orlando Bravo says he’s “working the hardest I’ve ever worked in 30 years of being in private equity.” Why? Because they’re buying market leaders and transforming them into AI-powered next-generation platforms.
Thoma Bravo isn’t buying “pretty good” companies. They’re buying category leaders with scale, AI integration stories, and clear paths to operational improvement. As Bravo put it: “We are not a subscriber to any money losing company.”
Throughout the first half of 2025, the deal concentration has been extreme. In Q2 2025 alone, there was $50 billion worth of exit value—the second-strongest M&A quarter since 2021. But 18 acquisitions worth over $1 billion accounted for the bulk: nine by public companies, six by private venture-backed companies, and three by private equity firms.
Here’s what I’m seeing in our SaaStr Fund extended portfolio: The PE offers that used to come at $20M ARR growing 40%? They’re just not coming anymore. Not unless you’re in a hot vertical (healthcare IT, fintech, cybersecurity), have AI deeply integrated, or maybe … are showing Rule of 40+ with a clear path to 40%+ EBITDA margins. But even there, the interest in the latter category is a fraction of what it was though 2023.
Deals that do happen are often at lower prices in classic SaaS. Software companies aren’t selling for 25x EBITDA anymore. They’re selling closer to 15x EBITDA, according to Orlando Bravo. That means you need real operational improvement, not just financial engineering or multiple expansion.
The firms are still sitting on massive amounts of dry powder globally, but there’s a backlog problem. Not since 2012 has the backlog of technology companies held longer than four years been higher. PE firms have their own portfolio companies they need to exit before they can deploy aggressively into new deals. In fact, global PE funds have more than $1 trillion in dry powder as they sit out “an unfavorable exit market” according to Q2 2025 data.
And vertical SaaS accounted for 46% of all SaaS M&A activity in Q2 2025, up from 40% the year prior. PE wants niche solutions with embedded workflows, high switching costs, and defensible moats. The horizontal SaaS play selling generic tools? Much harder to move.
Corporate M&A Is All-In on AI
The third traditional exit path—strategic acquisition—is even more challenged.
Following ChatGPT’s launch, AI M&A activity exploded. Through the first half of 2025, AI acquisitions show no signs of slowing. In Q2 2025 alone, AI companies used their massive funding rounds to go shopping—OpenAI attempted to buy four companies including IO ($6 billion) and Windsurf ($3 billion), though the latter fell through.
The numbers tell the story: In 2023, there were 271 AI M&A deals. That jumped to 326 deals in the following year—a 20% increase. Now in 2025, AI M&A is expected to grow another 32% based on the current run rate.
Here are 10 of the biggest AI acquisitions in the past 12 months showing where the money is really going:
- Alphabet acquires Wiz – $32 billion (March 2025: Cloud security with AI-powered threat detection)
- Palo Alto Networks acquires CyberArk – $25 billion (July 2025: Identity security and AI-driven access management)
- Meta acquires 49% of Scale AI – $14.8 billion (June 2025: AI data labeling and model training infrastructure)
- Salesforce acquires Informatica – $8 billion (March 2025: AI-powered cloud data management)
- OpenAI acquires io Products – $6.5 billion (May 2025: AI-native hardware co-founded by Jony Ive)
- Capgemini acquires WNS – $3.3 billion (July 2025: Enterprise AI consulting and analytics)
- ServiceNow acquires Moveworks – $2.85 billion (March 2025: AI-driven IT automation)
- Thoma Bravo acquires ModMed – $5.3 billion (Q1 2025: Healthcare AI and practice management)
- Workday acquires Sana – $1.1 billion (September 2025: AI-powered search and learning)
- AMD acquires Silo AI – $665 million (August 2024: Europe’s largest private AI lab for LLMs)
The pattern is clear: If you’re a strategic buyer with a billion+ check to write, you’re writing it for AI capabilities, not for a solid but unexciting SaaS business doing sales engagement or billing software.
The corporate development teams at the Googles, Microsofts, and Oracles of the world have one mandate right now: Build or buy AI capabilities. Everything else is secondary.
The IPO Bar Is Now Brutally High
So if VC funding has shifted to AI, PE has slowed, and corporate M&A is AI-focused, what about going public?
The bar to IPO used to be around $100M in revenue, growing 50%, back when companies like HubSpot and Box went public. Not anymore. Those days are long past.
For companies thinking about going public in 2025-2026, successful IPO candidates typically need at least $400M in ARR with growth of 30% or higher year-over-year (though 50-60% is even better).
Recent successful IPOs set the benchmark: Klaviyo IPO’d at $600M in ARR, growing 57% and profitable. Rubrik went public at $780M in revenue, growing at 47%. ServiceTitan successfully went public with approximately $600M+ in ARR. These set the new standard for what public markets expect.
The problem with subscale companies under $400M in revenue trying to IPO right now relates to expectations and risk/reward tradeoffs. Investors compare a company growing at 45% and barely breakeven on FCF to mature companies like CrowdStrike, which is growing at 29% with 32% FCF margins at $3.6B in ARR.
The public markets don’t want your $200M ARR, 25% growth, barely profitable SaaS company. They want the next Snowflake, CrowdStrike, or ServiceTitan. As Orlando Bravo noted: IPO markets are “just open for the very nice companies.”
So What Happens to All the “Pretty Good” SaaS Companies?
This is the existential question.
There are hundreds—maybe thousands—of really solid SaaS companies out there. They’re at $20M-$100M in ARR. Growing 25-40%. Gross margins in the 70s or 80s. Good retention. Solid teams. Often profitable or near-profitable.
These are good businesses. They’re not struggling. They’re not failing. They’re just not exceptional enough for the current market environment to generate exits.
From 2012-2023, these companies had clear paths:
- Get acquired by PE at a 5-8x revenue multiple, sometimes more
- Get rolled up into a strategic’s portfolio
- Keep growing toward a $400M+ IPO
- Raise growth equity to push toward one of the above
But now:
- PE wants bigger deals or higher growth
- Strategics want AI or massive scale
- The IPO bar is $400-500M+ at 40%+ growth
- Growth equity is all going to AI
The Hard Truths
AI is real, but AI valuations are insane. Orlando Bravo said it bluntly: “Valuations in AI are at a bubble. Both public and private. You cannot value a $50 million ARR company at $10 billion.” But here’s the paradox: While AI startups burn through billions at unsustainable valuations, AI is actually a potential tailwind for established enterprise software companies. As Bravo explains: “You’re selling your customer an important solution, a workflow solution, a system of record, something that’s deeply embedded in that customer’s process. And now with AI, you have so much more to sell them.”
SaaS companies will need to become enduring businesses, many without any exit. Not growth-at-all-costs vehicles for the next fundraise or exit. Actual profitable businesses that throw off cash and compound for years. This isn’t what most founders signed up for when they raised venture capital at 10x-20x+ revenue multiples. But as Bravo emphasizes: “At the end of the day, profitability and growth have to go together.”
Many will get acquired for less than their last round valuations. The down-round M&A market is real and accelerating in 2025. VCs and other stakeholders who would have resisted being acquired by another private company in the past are now welcoming the opportunity to roll their stakes into larger, more successful private companies that can ultimately go public or command an M&A premium at exit.
Many will stay private much longer than planned. The typical VC fund lifecycle of 7-10 years doesn’t work when exits take 12-15 years. We’re going to see a lot of extended holds, continuation funds, and creative solutions to provide some liquidity to early employees and investors.
The PE market will eventually return, but different. PE has historically relied on revenue growth (53%) and multiple expansion (43%) for value creation, with only 4% from margin improvement. That playbook is over. Future PE value creation will require real operational improvement. The days of buying at 6x and selling at 10x without operational changes are done. Now you need to buy at market, transform the business with AI capabilities, improve margins to 40%+ EBITDA, and create alpha through operational excellence—not market timing.
AI will eventually normalize, but not yet. Yes, at some point, AI investment will normalize and AI B2B will just be … B2B software. But we’re not there. AI funding in the first half of 2025 is running at more than double the pace of prior years. We’re probably 18-36 months from any real normalization.
Technology adoption is evolutionary, not revolutionary, in many traditional industries and enterprises especially. This might be the most important insight from Orlando Bravo: “This massive human displacement that people talk about, that’s not going to happen. People and companies have processes, regulations, sensitive data, compliance — all kinds of things that enable them only to move slowly to adapt new ways of doing things.” Translation: Your customers will adopt AI gradually. Don’t bet your business on overnight transformation.
What Should You Do?
If you’re running a “pretty good” SaaS company right now, here’s my advice:
Get profitable or close to it. The market doesn’t reward burning $2M a month to grow 40% anymore. Get to break-even or slight profitability. Show you can control your own destiny. As Orlando Bravo says: “We are not a subscriber to any money losing company.”
Invest in AI capabilities, but do it profitably. Don’t chase AI valuations while burning cash. The bubble will pop. But DO invest aggressively in AI capabilities for your core product. Your customers want agentic solutions and better workflows. This is real demand, not hype. The opportunity is combining AI enhancement with profitable operations—that’s the goldilocks zone.
Optimize for cash flow. A company doing $50M in ARR at 25% growth throwing off $10M in free cash flow is infinitely more valuable than one at $60M in ARR at 40% growth burning $15M a year. The math has flipped. Remember: exits are happening at 15x EBITDA, not 25x. You need to generate real earnings.
Consider tuck-in acquisitions yourselves. If you can’t get acquired, maybe you can do the acquiring. Lower-middle market SaaS companies will be particularly attractive M&A propositions through 2025-2026 due to potentially lower valuations and significant growth opportunities achievable through strategic roll-ups. Build a platform. This is exactly what Thoma Bravo does—they’re consolidating sectors like call centers because “AI is so additive to it.”
Focus on vertical, not horizontal. 46% of SaaS M&A in Q2 2025 was vertical SaaS. Buyers want niche solutions with embedded workflows and high switching costs. If you’re selling generic horizontal tools (marketing automation, HR tech, collaboration), you’re fighting against the current. Find your vertical and dominate it.
Extend your runway to … forever. Don’t assume 2025 is your exit year. The market needs more time to reset. PE needs to clear inventory. Corporate acquirers need to digest their AI investments. Give it time. As Bravo notes: “Sometimes you’re buying more than selling. Sometimes you’re selling more than buying.” The key is having the runway to wait for the right moment.
Focus on fundamentals that will matter when the market returns. Net Revenue Retention above 100%. Gross margins above 75%. Efficient growth (Rule of 40 or better). Customer concentration below 10%. Path to 40%+ EBITDA margins. These metrics will matter when buyers return. But also: developers becoming more productive with AI, not being replaced. Thoma Bravo’s $30 billion portfolio has “about the same number of developers as a year ago” but they’re “producing more product for their customers and less expensive products.”
Be realistic about exit multiples. IPO markets are open “just open for the very nice companies” according to Bravo. Software companies are selling at 15x EBITDA, not 25x. The 2021 revenue multiple environment isn’t coming back. This means operational excellence matters more than ever. You can’t rely on multiple expansion. You need real business transformation and alpha generation.
The New World in B2B
We’re in a very weird moment. There’s more capital available to invest than ever before—$476 billion in PE dry powder globally plus massive VC funds. But nearly all of it is chasing AI or the absolute best companies.
The middle-tier SaaS companies—good companies, profitable companies, companies with happy customers—are in no-man’s land.
But here’s the contrarian take, and Orlando Bravo has it right: AI valuations are in a bubble, but AI’s impact on enterprise software is real and massive. The $1.5 trillion software economy is getting a genuine tailwind.
The firms and founders who understand this—who can add AI capabilities while maintaining profitability, who recognize that technology adoption is evolutionary not revolutionary, who build for the long term—will win the next decade.
Some will figure it out. Some will build real businesses. Some will get creative with M&A. Some will eventually get their exit when the market normalizes.
But many are going to be stuck for a while. And we need to be honest about that.
The question isn’t “Will PE and corporate buyers come back to SaaS?” They will, eventually. They’re already active—just incredibly selective. The question is “What do you do in the meantime? And how do you position yourself to be one of the companies they want when they’re ready?”
That’s the real challenge facing SaaS founders and investors right now.
If one of the world’s most successful software investors—after 30 years and 600+ acquisitions—is working harder than ever, that should tell you something. The opportunity is massive. But the bar is much, much higher than it used to be.
What are you seeing in your portfolio or with your company? I’d love to hear from founders and investors dealing with this in real-time.
See you at SaaStr AI London on Dec 1-2!!
—Jason
