Meta Description: SaaS exits have collapsed in 2025 as AI captures all venture capital. Learn the critical strategies SaaS CEOs need to survive, achieve profitability, and position for future exits.
Introduction: The Exit Playbook Is Broken
If you’re a SaaS CEO leading a company with $20M to $100M in ARR, decent growth rates, and solid fundamentals, you’re probably facing an uncomfortable truth: the exit you were building toward may no longer exist.
For over a decade, the SaaS exit playbook was predictable. Build to $20M-$50M in ARR, maintain 40% growth or hit the Rule of 40, and buyers would emerge. Private equity firms would compete for your company. Strategic acquirers would see you as a valuable tuck-in acquisition. The ecosystem functioned like clockwork.
That playbook has fundamentally broken down in 2025. The AI revolution hasn’t just changed the competitive landscape—it’s completely reshaped where capital flows, what buyers want, and which companies can successfully exit. For the first time in over a decade, thousands of profitable, well-run SaaS companies find themselves in no-man’s land with no clear path forward.
This article provides SaaS CEOs with an unflinching look at the current market reality and a practical survival strategy for navigating the next 3-5 years. Whether you’re venture-backed, bootstrapped, or PE-owned, understanding these market dynamics is critical to your company’s future.
🔑 Key Takeaways: What Every SaaS CEO Needs to Know
The Crisis:
- AI companies captured 58% of all VC funding in 2025 ($377B annualized), leaving traditional SaaS fighting for scraps
- SaaS mega-rounds collapsed 85%—from 147 deals in 2021 to just 21 in the past year
- Interest rates jumped from 0-2% to 7-9%, more than tripling PE acquisition costs
- Exit multiples compressed from 25x EBITDA to 15x EBITDA—a 40% haircut
The New Reality:
- Private equity only wants category leaders with AI integration and paths to 40%+ EBITDA margins
- Strategic acquirers are laser-focused on AI capabilities, not traditional SaaS features
- The IPO bar now requires $400M+ ARR with 30-50% growth AND profitability
- “Pretty good” companies with $20M-$100M ARR are stuck in no-man’s land
The 8-Point Survival Strategy:
- Get profitable immediately—PE won’t touch money-losing companies at any growth rate
- Invest in AI profitably—enhance products without burning cash chasing bubble valuations
- Optimize for cash flow over growth—$50M ARR + $10M FCF beats $60M ARR burning $15M
- Consider becoming an acquirer—build a platform through consolidation if you can’t exit
- Focus on vertical, not horizontal—46% of 2025 M&A was vertical SaaS with high switching costs
- Extend runway to 5+ years—operate as if you’ll never exit and build a sustainable business
- Build the fundamentals—110%+ NRR, 75%+ gross margins, Rule of 40, clear path to 40%+ EBITDA
- Reset exit expectations—accept 4-8x ARR multiples, not 2021’s inflated 15-20x valuations
The Bottom Line: The 2020-2021 ultra-low rate environment was an aberration, not a baseline. Companies that adapt to profitable growth with AI capabilities will become category leaders. Those waiting for 2021 conditions to return may not survive long enough to see any exit at all.
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The Data Tells a Stark Story: Where All the Money Went
Venture Capital Has Gone All-In on AI
The numbers are staggering. In the first half of 2025 alone, AI companies attracted between $60-73 billion in Q1, with AI accounting for approximately 58% of global venture capital. By Q2 2025, AI startups captured 53% of global VC spend, rising to 64% in the United States.
The scale becomes even clearer when you examine deal flow. Over 10,400 deals were completed in the AI/ML space in just the first six months of 2025, with an average deal size exploding to $35.9M—more than double the $17.2M average from the prior year.
For traditional SaaS companies, the funding drought is severe. Mega-rounds exceeding $100 million collapsed from 147 deals in 2021 to just 21 deals in the 12-month period through mid-2025. If your SaaS company isn’t positioned as “AI-native” or showing outlier growth fueled by AI capabilities, you’re competing for a rapidly shrinking pool of capital.
Private Equity Has Become Ruthlessly Selective
Private equity was historically the reliable exit path for SaaS companies. Hit $20M in ARR, achieve 40% growth or Rule of 40 metrics, and PE term sheets would arrive. From 2012 through 2023, nearly every strong SaaS company crossing $20M ARR with solid fundamentals received multiple PE offers.
That dynamic has shifted dramatically. While Q1 2025 saw 210 enterprise SaaS M&A deals and private equity-led deals hit a quarterly record of 73 transactions, the total deal value tells a different story. Total enterprise SaaS M&A in Q1 2025 was $29.1 billion, down 24.8% quarter-over-quarter, with just five deals accounting for approximately half of all transaction value.
Leading PE firms like Thoma Bravo—which completed $42 billion in acquisitions in 2025—aren’t buying “pretty good” companies anymore. They’re targeting category leaders with significant scale, compelling AI integration stories, and clear operational improvement paths. Their focus has shifted from financial engineering and multiple expansion to genuine operational transformation. According to recent analysis of 2024 SaaS M&A activity, PE-backed strategics made up 51% of deals in 2024, with private equity involved in 61% of all SaaS transactions when including both platforms and portfolio add-ons.
The message from top PE investors is clear: they’re not interested in money-losing companies, regardless of growth rates. Software valuations have compressed from 25x EBITDA to closer to 15x EBITDA, meaning companies need to demonstrate real operational excellence and profitability, not just growth momentum.
Strategic Acquirers Want AI, Period
The third traditional exit path—strategic acquisition—faces similar challenges. Corporate M&A activity is overwhelmingly focused on AI capabilities.
The largest acquisitions in 2025 illustrate where strategic dollars are flowing: Alphabet acquiring Wiz for $32 billion, Palo Alto Networks purchasing CyberArk for $25 billion, Meta investing $14.8 billion in Scale AI, and Salesforce acquiring Informatica for $8 billion. These deals share a common theme—they’re all acquiring AI-powered capabilities, not traditional SaaS businesses.
Corporate development teams at major technology companies have one overriding mandate: build or buy AI capabilities. Everything else is secondary. If you’re running a solid but traditional SaaS business in sales engagement, billing software, or generic horizontal tools, you’re unlikely to generate strategic interest in the current environment.
The IPO Bar Has Reached New Heights
Going public used to be achievable at around $100M in revenue with 50% growth. Companies like HubSpot and Box set that standard in earlier years. Those days are definitively over.
In 2025, successful IPO candidates typically need at least $400M in ARR with growth rates of 30% or higher—ideally 50-60%. Recent successful IPOs establish the new benchmark: Klaviyo went public at $600M in ARR growing at 57% and profitable, Rubrik at $780M in revenue growing at 47%, and ServiceTitan with approximately $600M+ in ARR.
The public markets aren’t interested in $200M ARR companies growing at 25% and barely breakeven on free cash flow. Investors compare these profiles unfavorably to mature, profitable companies like CrowdStrike, which grows at 29% with 32% free cash flow margins at $3.6B in ARR.
The Interest Rate Factor: How Cheap Money Fueled—and Its Absence Froze—SaaS M&A
While AI dominance and changing buyer priorities explain much of today’s exit crisis, there’s a fundamental macroeconomic force that’s equally important but often overlooked: interest rates. The dramatic shift from ultra-low rates to a higher rate environment has fundamentally restructured the economics of SaaS acquisitions, particularly for private equity buyers who have historically been the most reliable exit path for mid-market companies.
To understand the current predicament, we need to contrast three distinct interest rate eras and their impact on SaaS M&A activity.
The Post-Financial Crisis Low-Rate Era (2009-2019): Building the Playbook
Following the 2008 financial crisis, the Federal Reserve dropped rates to near-zero and kept them there for years. From 2009 through 2015, the federal funds rate remained between 0-0.25%. Even as the Fed began gradually raising rates in 2015, they remained historically low through 2019, rarely exceeding 2.5%.
This low-rate environment created extraordinarily favorable conditions for private equity SaaS acquisitions. As detailed in this analysis of enterprise SaaS M&A trends, the fluctuation of interest rates has significantly influenced M&A activity throughout different periods. Here’s why low rates mattered:
Cheap Debt Financing: PE firms typically structure acquisitions using 50-60% debt financing. When interest rates on leveraged loans were 3-5%, the cost of capital was remarkably low. A $100M acquisition might be financed with $40M equity and $60M debt at 4% interest, translating to just $2.4M in annual interest expense.
Attractive Return Profiles: With cheap debt, PE firms could acquire companies at 6-8x EBITDA multiples, implement modest operational improvements, and exit at similar multiples while still generating strong IRRs of 20-30%. The math worked even without significant multiple expansion because the cost of capital was so low.
Abundant Deal Flow: The economics were so favorable that PE firms aggressively competed for quality assets. This is when the predictable exit playbook emerged—hit $20M ARR with 40% growth, and multiple PE firms would submit term sheets. The low cost of debt made even moderately profitable companies attractive targets.
Financial Engineering Works: Low rates meant that financial engineering actually created value. Refinancing existing debt at lower rates, dividend recapitalizations, and multiple arbitrage between entry and exit generated returns independent of operational improvements.
This era established the expectations that shaped an entire generation of SaaS founders and investors. Build a solid company with decent fundamentals, and buyers would materialize.
The Post-COVID Ultra-Low Rate Bonanza (2020-2021): Peak SaaS Euphoria
Then came COVID-19, and central banks worldwide responded with unprecedented monetary stimulus. The Fed dropped rates back to 0-0.25% in March 2020 and kept them there through 2021. Combined with quantitative easing pumping trillions into the financial system, this created the most favorable financing environment in modern history.
The impact on SaaS M&A was explosive:
Free Money Era: Debt financing costs hit all-time lows. PE firms could borrow at 2-3% for leveraged buyouts. Some firms secured debt financing at rates that were effectively subsidized by government stimulus programs. The interest expense on that same $100M acquisition financed with $60M debt? Now just $1.2-1.8M annually at 2-3% rates.
Sky-High Revenue Multiples: With such cheap financing and abundant capital, PE firms and strategic buyers competed furiously for SaaS assets. Valuation multiples exploded. Companies trading at 6-8x EBITDA in 2019 were suddenly commanding 15-25x EBITDA in 2021. Revenue multiples—which had been 5-8x ARR for quality companies—surged to 10-20x ARR for high-growth businesses.
Aggressive Underwriting: The low cost of capital allowed buyers to underwrite deals with thinner margin assumptions. Companies could be “barely Rule of 40” or even below it and still attract premium offers. Growth was rewarded above all else, and profitability became secondary. After all, if your debt financing costs 2%, you can afford to carry unprofitable companies while they scale.
Deal Volume Explosion: In 2021, there were 147 mega-rounds ($100M+) in SaaS funding. PE deal volume reached record levels. Strategic acquisitions occurred at unprecedented valuations. Every week brought news of another nine-figure exit for a relatively young SaaS company.
The Fundraising Frenzy: SaaS companies raised equity capital at astronomical valuations during this period—often 10x-20x+ revenue multiples. These valuations made sense (barely) in a zero-rate world where traditional safe investments yielded nothing and investors desperately sought growth. But they embedded expectations that would become painful when rates normalized.
This was the peak of SaaS euphoria, and it fundamentally distorted expectations. Founders who raised at these valuations expected exits at similar or higher multiples. VCs who invested at these prices needed those exits to materialize. The entire ecosystem became dependent on the continuation of ultra-low rates.
The Current Higher-Rate Reality (2022-2025): The Freeze
Then everything changed. Beginning in March 2022, the Federal Reserve embarked on the most aggressive rate-hiking cycle in four decades. Rates went from 0.25% to over 5.25% by July 2023, where they’ve remained elevated through 2025 despite some modest cuts.
The impact on SaaS M&A has been devastating:
Dramatically Higher Debt Costs: That same $60M debt financing for a $100M acquisition now costs 7-9% in interest—translating to $4.2-5.4M annually. The interest expense has more than doubled or tripled compared to the 2020-2021 era. This fundamental math makes many deals that were attractive at 2-3% rates completely uneconomical at 7-9% rates.
Compressed Return Profiles: To achieve their target IRRs of 20-25%, PE firms now need either much lower entry multiples or much higher operational improvements. Let’s look at the math:
- 2020 scenario: Buy at 8x EBITDA with 3% debt, sell at 10x EBITDA with modest improvements = 25% IRR
- 2025 scenario: Buy at 8x EBITDA with 8% debt, sell at 10x EBITDA with modest improvements = 12% IRR
That 12% IRR is below PE hurdle rates. To hit 25% IRR in the current environment, firms need to either buy at 5-6x EBITDA (much lower entry multiples) or drive significant EBITDA margin expansion through operational transformation. This explains why Orlando Bravo talks about working harder than ever—the easy wins from financial engineering are gone.
Debt Markets More Restrictive: Banks and credit funds are not only charging higher rates but also imposing stricter covenants. Loan-to-value ratios have compressed. Lenders want to see stronger cash flow coverage of interest expenses. This means PE firms can’t leverage deals as aggressively, requiring more equity for each transaction—which further reduces returns and limits deal capacity.
Multiple Compression Across the Board: Public SaaS companies saw their multiples collapse from peaks of 15-20x revenue in 2021 to 3-8x revenue by 2023-2024. While multiples have recovered somewhat in 2025, they remain far below 2021 peaks. Private company valuations followed suit, compressing from 25x EBITDA to 15x EBITDA for software companies. This multiple compression alone wiped out trillions in paper value.
Portfolio Company Challenges: PE firms’ existing portfolio companies—many acquired with significant debt at low rates—now face refinancing risk. When their low-rate debt matures, they must refinance at dramatically higher rates, compressing cash flows and making it harder to achieve targeted exit multiples. This creates the portfolio “backlog” problem—PE firms need to work through these challenged holdings before deploying capital into new deals.
The Dry Powder Paradox: PE firms are sitting on over $1 trillion in dry powder globally, yet deal activity remains muted. It’s not a lack of capital—it’s that the return math doesn’t work at current interest rates and valuation levels. Firms can’t pay 2021 prices with 2025 financing costs and hit their return targets. So they wait, hoping for either lower rates, lower valuations, or companies with such strong fundamentals that the math works despite high rates.
What This Means for SaaS CEOs
Understanding the interest rate context is critical for setting realistic expectations:
Your Exit Multiple Will Be Lower: If you raised at 15x ARR in 2021, accepting an exit at 6-8x ARR feels painful. But in a 7-9% interest rate environment, that’s the realistic clearing price for most companies. The alternative is no exit at all. Buyers literally can’t pay 2021 multiples with 2025 debt costs and hit their return hurdles. Recent analysis of 2025 SaaS acquisition valuations shows general SaaS valuations have stabilized in the range of 4-5x total revenue, with only the strongest performers commanding 6-10x revenue multiples.
Profitability Is Non-Negotiable: In a 2-3% rate environment, buyers could carry unprofitable growth companies and absorb the burn. At 7-9% rates, every dollar of negative EBITDA directly reduces debt capacity and return potential. This is why PE firms now say they won’t acquire money-losing companies regardless of growth rates.
The EBITDA Margin Path Matters: Buyers need to see a clear path to 40%+ EBITDA margins because their return models now depend on margin expansion rather than multiple expansion. They can’t count on exiting at higher multiples than they paid—they need the EBITDA dollars to grow substantially.
Waiting for Rate Cuts Won’t Solve Everything: While some hope the Fed will cut rates back to 2020 levels, that’s extremely unlikely. Even optimistic scenarios have rates settling in the 3-4% range—still significantly higher than the 2020-2021 ultra-low environment. The 2020-2021 period was an aberration, not a baseline to which we’ll return.
Strategic Buyers Feel It Too: While strategic acquirers don’t rely on leveraged financing the same way PE firms do, they face their own cost of capital pressures. Their hurdle rates for acquisitions are higher when they could alternatively invest in risk-free treasuries yielding 4-5%. This raises the bar for what constitutes an attractive acquisition.
The interest rate environment explains much of why PE has become so selective, why valuations have compressed so dramatically, and why exits that seemed certain in 2021 are no longer materializing. It’s not just that AI has shifted investor attention—it’s that the fundamental economics of debt-financed acquisitions have shifted in a way that makes most mid-market SaaS companies unattractive at their expected valuations.
This isn’t temporary. Even if rates decline modestly from current levels, we’re unlikely to see a return to the ultra-low rate environment that fueled the 2020-2021 boom. SaaS CEOs need to recalibrate expectations and business models for a world of structurally higher capital costs.
Understanding the Existential Question: What Happens to “Pretty Good” Companies?
This is the critical challenge facing hundreds, perhaps thousands, of SaaS companies today. These aren’t struggling businesses. They’re solid companies with $20M-$100M in ARR, growing 25-40%, maintaining gross margins in the 70-80% range, demonstrating good retention, and often operating profitably or near-profitably.
From 2012-2023, these companies had clear options: get acquired by private equity at a 5-8x revenue multiple, get rolled into a strategic acquirer’s portfolio, keep growing toward a $400M+ IPO, or raise growth equity to pursue one of these paths. The 2023 SaaS M&A market saw 2,062 transactions—the second-highest total on record—demonstrating how active the market remained even as conditions began shifting.
In 2025, none of these paths are readily available. Private equity wants bigger deals or higher growth. Strategic buyers want AI or massive scale. The IPO bar requires $400-500M+ in ARR at 40%+ growth. Growth equity capital is predominantly flowing to AI startups.
For SaaS CEOs, this creates an unprecedented challenge. These are good businesses built with sound fundamentals, but they’re not exceptional enough for the current market environment to generate traditional exits.
The Hard Truths Every SaaS CEO Must Accept
AI Valuations Are in a Bubble—But AI Impact Is Real
There’s a paradox at the heart of today’s market. AI startup valuations are objectively inflated—$50 million ARR companies valued at $10 billion can’t be justified by traditional metrics. The bubble is real, and it will eventually correct.
However, AI’s impact on enterprise software is genuine and represents a massive tailwind for established companies. When you’re selling customers important workflow solutions, systems of record, or deeply embedded processes, AI gives you significantly more to sell them. The opportunity lies in enhancing existing products with AI capabilities while maintaining profitable operations—not chasing unsustainable AI valuations.
Many Companies Will Exit Below Their Last Valuation
The down-round M&A market is accelerating in 2025. VCs and stakeholders who would have resisted acquisitions below their last valuation are now welcoming opportunities to roll their stakes into larger, more successful private companies that can ultimately exit at a premium.
If you raised capital at 10x-20x+ revenue multiples during 2020-2021, accepting this new reality is painful but necessary. Holding out for your last-round valuation may mean never exiting at all.
Companies Will Stay Private Much Longer Than Planned
The typical VC fund lifecycle of 7-10 years doesn’t align with exits now taking 12-15 years. We’re going to see extensive use of extended holds, continuation funds, and creative liquidity solutions for early employees and investors.
As a CEO, you need to plan as if your exit is 5+ years away, not 1-2 years. This fundamentally changes decisions about burn rate, capital efficiency, and team building.
Technology Adoption Remains Evolutionary, Not Revolutionary
Despite the AI hype, most customers in traditional industries and enterprises can only move slowly to adopt new technologies. They have existing processes, regulatory requirements, sensitive data, and compliance obligations that prevent overnight transformation.
Don’t bet your business on customers radically changing their workflows immediately. Plan for gradual adoption and steady improvement, not revolutionary change.
The 8-Point Survival Strategy for SaaS CEOs
1. Achieve Profitability or Get Very Close
The market no longer rewards burning $2M monthly to achieve 40% growth. The new calculus strongly favors profitability. Get to break-even or slight profitability to demonstrate you can control your own destiny.
This doesn’t mean sacrificing all growth, but it does mean being ruthlessly efficient. Companies that can show 25% growth with $10M in free cash flow are infinitely more valuable than those showing 40% growth while burning $15M annually. The math has fundamentally flipped.
2. Invest in AI Capabilities—But Do It Profitably
Don’t ignore AI, but don’t chase AI valuations while burning cash either. The bubble will eventually pop. However, you absolutely must invest aggressively in AI capabilities for your core product.
Your customers genuinely want agentic solutions and enhanced workflows. This is real demand, not hype. The goldilocks zone is combining AI enhancement with profitable operations. Focus on AI features that improve customer outcomes and justify price increases or reduce churn, not AI features built for press releases.
3. Optimize Ruthlessly for Cash Flow
A company generating $50M in ARR at 25% growth producing $10M in free cash flow is significantly more valuable than one at $60M in ARR at 40% growth burning $15M annually.
Remember that exits are happening at 15x EBITDA, not 25x. You can’t rely on multiple expansion. You need to generate real earnings. Audit every dollar spent and ask whether it’s contributing to profitability or just maintaining growth momentum that won’t translate to exit value.
4. Consider Becoming an Acquirer Yourself
If you can’t get acquired, perhaps you can do the acquiring. Lower-middle market SaaS companies are becoming increasingly attractive M&A opportunities through 2025-2026 due to lower valuations and significant growth opportunities achievable through strategic roll-ups.
Build a platform by consolidating your sector. This is exactly the strategy major PE firms employ—they’re consolidating fragmented markets where AI can be particularly additive. If you’re profitable and generating cash, you can potentially acquire competitors or adjacent companies at attractive valuations. For a comprehensive guide on positioning your company for strategic acquisition, see this data-driven strategy for early-stage SaaS CEOs.
5. Double Down on Vertical, Not Horizontal Solutions
Vertical SaaS accounted for 46% of all SaaS M&A activity in Q2 2025, up from 40% the previous year. Buyers want niche solutions with embedded workflows, high switching costs, and defensible moats.
If you’re selling generic horizontal tools in marketing automation, HR tech, or collaboration, you’re fighting against the current. Find your vertical and dominate it. The tighter your focus on a specific industry with deep workflow integration, the more attractive you become to acquirers.
6. Extend Your Runway Indefinitely
Don’t assume 2025 or 2026 is your exit year. The market needs time to reset. Private equity needs to clear its existing portfolio inventory. Corporate acquirers need to digest their AI investments and understand what’s working.
Operate as if you’ll never exit. Build a sustainable business that can compound independently for years. This changes everything about how you manage the business—capital allocation, hiring, product roadmap, and customer acquisition strategy.
7. Obsess Over the Fundamentals That Will Matter When Markets Return
When the market normalizes and buyers return, they’ll be evaluating companies on core fundamentals:
- Net Revenue Retention above 110%: Demonstrate you’re growing within your customer base
- Gross margins above 75%: Show healthy unit economics
- Rule of 40 or better: Balance growth and profitability effectively
- Customer concentration below 10%: Reduce single customer risk
- Path to 40%+ EBITDA margins: Prove operational leverage is possible
- Developer productivity with AI: Show your team is becoming more efficient, not just larger
Build these metrics now. They’ll determine who gets acquired when the market reopens.
8. Be Radically Realistic About Exit Multiples
IPO markets are open only for exceptional companies. Software companies are trading at 15x EBITDA, not 25x. The 2021 revenue multiple environment is not returning anytime soon.
This means operational excellence matters more than ever. You can’t rely on market timing or multiple expansion. You need genuine business transformation that creates alpha through superior operations, not favorable market conditions.
Set internal expectations accordingly. Communicate honestly with your board, investors, and leadership team about what a realistic exit looks like in this environment.
The Contrarian Opportunity
Here’s the paradoxical opportunity: There’s more investment capital available 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.
This creates a unique opportunity for well-positioned SaaS companies. If you can build genuine AI capabilities while maintaining profitability, recognize that technology adoption is evolutionary rather than revolutionary, and build for long-term sustainable value, you can position yourself for significant value creation when the market normalizes.
The firms and founders who understand this dynamic—who can be patient, efficient, and strategic—will win the next decade. Some will figure out creative M&A strategies. Some will build genuinely enduring businesses that eventually command premium exits. Some will be perfectly positioned when PE and strategic buyers return with renewed appetite for well-run SaaS companies.
But many companies will remain stuck for years. And as SaaS CEOs, we need to be brutally honest about that reality.
Conclusion: The New Definition of Success
The question isn’t whether PE and corporate buyers will return to SaaS. They will, eventually. The market is incredibly active—just incredibly selective. The real 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?
Success in this environment means redefining what you’re building. You’re not creating a growth-at-all-costs vehicle for the next fundraise or exit. You’re building an enduring, profitable business that can compound value for years.
This may not be what you signed up for when you raised venture capital at 10x-20x+ revenue multiples. But it’s the reality of building in 2025.
The bar is higher than it’s ever been. Even the most successful software investors—after 30 years and 600+ acquisitions—are working harder than they ever have. The opportunity remains massive. But the path to success has fundamentally changed.
As a SaaS CEO, your job is to navigate this transition successfully. Build profitably. Integrate AI thoughtfully. Optimize for cash flow. Focus on fundamentals. And most importantly, build a business that can thrive whether an exit comes in 2 years or 10 years.
The companies that make these adjustments will be the category leaders of the next decade. The ones that don’t may not survive long enough to see the market return.
Frequently Asked Questions
Why are SaaS exits declining in 2025?
SaaS exits have declined dramatically due to three converging factors. First, AI companies captured 58% of all venture capital in 2025 ($377B annualized), leaving traditional SaaS companies competing for a shrinking pool of capital. Second, higher interest rates (7-9%) have more than doubled debt financing costs for private equity firms, making most acquisitions uneconomical at previous valuations. Third, private equity firms have become ruthlessly selective, only targeting category leaders with AI integration stories and clear paths to 40%+ EBITDA margins. The predictable exit playbook of hitting $20M ARR and receiving multiple PE offers no longer works in this environment.
What is a realistic SaaS exit multiple in 2025?
SaaS exit multiples have compressed significantly from the 2020-2021 peak. Software companies are now selling at approximately 15x EBITDA, down from 25x EBITDA during the ultra-low interest rate period. For revenue multiples, general SaaS valuations have stabilized in the 4-5x ARR range, with only exceptional companies showing strong AI integration and profitability commanding 6-10x revenue multiples. Companies that raised at 10-20x revenue multiples in 2021 need to reset expectations, as buyers cannot pay 2021 prices with 2025 financing costs and still hit their return targets.
How do interest rates impact SaaS M&A activity?
Interest rates have a profound impact on SaaS M&A because private equity firms typically finance 50-60% of acquisitions with debt. When rates were 2-3% (2020-2021), a $60M debt portion of a $100M deal cost just $1.2-1.8M annually in interest. At current rates of 7-9%, that same debt costs $4.2-5.4M annually—nearly tripling the financing expense. This dramatically reduces PE returns and forces firms to either pay much lower entry multiples, demand higher EBITDA margins, or pass on deals entirely. The era of financial engineering and multiple expansion creating value is over; PE firms now need genuine operational improvements to hit their 20-25% IRR targets.
What is the Rule of 40 and why does it matter for exits?
The Rule of 40 is a key SaaS metric stating that a company’s revenue growth rate plus profit margin should equal 40% or more. For example, a company growing at 30% with 10% profit margin hits the Rule of 40. This metric matters critically for exits because private equity firms and strategic acquirers use it as a quick filter for acquisition targets. In the current market, PE firms want companies at or above Rule of 40 with a clear path to 40%+ EBITDA margins. Companies below Rule of 40 struggle to attract buyer interest unless they’re in exceptionally hot verticals like healthcare IT, fintech, or cybersecurity with strong AI integration.
Should I wait for interest rates to drop before pursuing an exit?
Waiting for interest rates to return to 2020-2021 levels is unrealistic and potentially dangerous. Even in optimistic scenarios, rates are expected to settle around 3-4%—still significantly higher than the 0-2% ultra-low environment. More importantly, the 2020-2021 period was an aberration driven by pandemic stimulus, not a normal baseline. Instead of waiting, SaaS CEOs should focus on getting profitable, building AI capabilities, optimizing for cash flow, and extending runway indefinitely. The companies that adapt to the new higher-rate reality will be positioned as category leaders when M&A activity normalizes, while those waiting for 2021 conditions may run out of runway entirely.
How can I position my SaaS company for acquisition in this market?
To position your SaaS company for acquisition in 2025, focus on eight critical strategies: (1) Achieve profitability or get very close—PE firms won’t consider money-losing companies; (2) Invest in AI capabilities profitably to show you’re enhancing products without burning cash; (3) Optimize ruthlessly for cash flow over growth; (4) Focus on vertical SaaS rather than horizontal solutions—46% of Q2 2025 M&A was vertical SaaS; (5) Build fundamentals buyers want: 110%+ Net Revenue Retention, 75%+ gross margins, Rule of 40 performance, and path to 40%+ EBITDA margins; (6) Extend your runway to 5+ years and operate as if you’ll never exit; (7) Consider becoming an acquirer yourself to build a platform; (8) Reset exit multiple expectations to 4-8x ARR rather than 2021 multiples.
About the Author
John C. Mecke is a 30-year veteran of the enterprise software market and Managing Director of Development Corporate, a corporate development advisory firm serving enterprise and mid-market technology companies.
John has lived the realities of SaaS exits from every angle. He has led six global product management organizations for three public companies and three private equity-backed firms, giving him unique insight into what buyers actually look for. His track record speaks for itself: John played a key role in delivering a $115 million dividend for private equity backers—a 2.8x return in less than three years.
Over his career, John has led five major acquisitions totaling over $175 million in consideration and eleven divestitures worth $24.5 million, including:
- The $68M acquisition of EasyLink Services Corporation by Internet Commerce Corporation, transforming a niche EDI player into a top-tier provider
- The $80M acquisition of Synon Corporation by Sterling Software, expanding market leadership in IBM AS/400 application development tools
- Multiple successful exits of non-core business units that generated cash and refocused resources on strategic initiatives
John has worked in nearly every part of enterprise software firms—from product management and development to sales, M&A, and general management. He has led teams as large as 135 people spanning five global locations and lived and worked across four continents.
Now based in Costa Rica, John helps technology CEOs navigate complex M&A transactions, build acquisition strategies, and position their companies for successful exits. His blog on product management and corporate development reaches thousands of SaaS executives monthly.
Connect with John:
- Website: DevelopmentCorporate.com
- LinkedIn: linkedin.com/in/jcmecke
- Email: john.mecke@developmentcorporate.com
Need help positioning your SaaS company for acquisition? John provides corporate development advisory services including buy-side and sell-side M&A strategy, operational due diligence, integration planning, and exit preparation. Schedule a consultation.
