Madrona Ventures anticipates a rise in private-to-private mergers as a key trend for 2026. With questions about the long-term durability of even fast-growing private AI companies, consolidation is seen as a primary way for winners to emerge and build more defensible businesses in a volatile market.

With hundreds of unicorns and only about 20 tech IPOs per year, the market has a 30-year backlog. Consolidations between mid-size unicorns, like the potential Fivetran and dbt deal, are a necessary strategy for VCs to create IPO-ready companies and generate much-needed liquidity from their portfolios.

A significant shift has occurred: private equity firms are no longer actively pursuing acquisitions of solid SaaS companies that fall short of IPO scale. This disappearance of a reliable exit path forces VCs and founders to find new strategies for liquidity and growth.

Acquiring smaller companies at a 5-6x EBITDA multiple and integrating them to reach a larger scale allows you to sell the combined entity at a 10-12x multiple. This multiple expansion is a powerful, often overlooked financial driver of M&A strategies, creating value almost overnight.

The most lucrative exit for a startup is often not an IPO, but an M&A deal within an oligopolistic industry. When 3-4 major players exist, they can be forced into an irrational bidding war driven by the fear of a competitor acquiring the asset, leading to outcomes that are even better than going public.

Investor Jason Lemkin claims that private equity firms and strategic acquirers are no longer interested in buying B2B SaaS companies in the $50M to $800M ARR range that lack a strong AI narrative. Even if profitable, these companies are seen as existentially threatened, effectively closing a once-reliable exit path for founders and investors.

The true second-order effect of AI isn't just a single massive solo company. It's a "golden age" of B2B SaaS, where a one-person unicorn will rely on hundreds of other small, hyper-specialized software startups to handle its various functions.

The dot-com era saw ~2,000 companies go public, but only a dozen survived meaningfully. The current AI wave will likely follow a similar pattern, with most companies failing or being acquired despite the hype. Founders should prepare for this reality by considering their exit strategy early.

The current M&A landscape is defined by a valuation disparity where smaller companies trade at a discount to larger ones. This creates a clear strategic incentive for large corporations to drive growth by acquiring smaller, more affordable competitors.