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.
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A market bifurcation is underway where investors prioritize AI startups with extreme growth rates over traditional SaaS companies. This creates a "changing of the guard," forcing established SaaS players to adopt AI aggressively or risk being devalued as legacy assets, while AI-native firms command premium valuations.
The current fundraising environment is the most binary in recent memory. Startups with the "right" narrative—AI-native, elite incubator pedigree, explosive growth—get funded easily. Companies with solid but non-hype metrics, like classic SaaS growers, are finding it nearly impossible to raise capital. The middle market has vanished.
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.
Investor Jason Lemkin's thesis for niche B2B software is that AI must enable a massive increase in price to be compelling. If an AI-powered product can eliminate the need for 10 back-office employees, a tool that previously sold for $8,000 a year can now command an $80,000 price tag, transforming its unit economics into something venture-backable.
Ambitious bootstrappers should reconsider building horizontal SaaS products. These broad markets are now flooded with well-funded, AI-first competitors, creating intense headwinds that cause bootstrapped companies to plateau hard in the low-seven-figure ARR range.
For over a decade, SaaS products remained relatively unchanged, allowing PE firms to acquire them and profit from high NRR. AI destroys this model. The rate of product change is now unprecedented, meaning products can't be static, introducing a technology risk that PE models are not built for.
For years, founders of profitable but slow-growing SaaS companies could rely on a private equity acquisition as a viable exit. That safety net is gone. PE firms are now just as wary of AI disruption and growth decay as VCs, leaving many 'pretty good' SaaS companies with no buyers.
Recent acquisitions of slow-growth public SaaS companies are not just value grabs but turnaround plays. Acquirers believe these companies' distribution can be revitalized by injecting AI-native products, creating a path back to high growth and higher multiples.
Established SaaS companies with strong, but not explosive, growth will struggle to raise new venture capital. Their path forward involves running a capital-efficient business while aggressively integrating AI to create new tailwinds, or else face a long, slow grind to a modest exit without further investment.
A 'tale of two cities' exists in SaaS. Traditional software budgets are frozen, with spending eaten by price hikes from incumbents. Simultaneously, new, separate AI budgets are creating massive opportunities, making the market feel dead for classic SaaS but booming for AI-native solutions.
