The Question Every VC Is Sitting With Right Now

Most VC portfolios have a problem nobody wants to say out loud.

Buried under the excitement about AI investments, agentic infrastructure, and foundation model bets is a large cohort of traditional SaaS companies that were funded between 2018 and 2023, are growing respectably, and are now essentially stranded in a market that no longer wants to pay what they are worth.

Why it happened and what we can do about it.

Some thoughts👇

Two years ago, a $10 million ARR SaaS company growing 2-3x year over year was a compelling Series B candidate. It could raise $30 million on a $120 million pre-money valuation, $150 million post, representing roughly a 12x ARR multiple.

That was not an aggressive number. That was the market.

Today, the same company, same growth rate, same metrics, is lucky to raise $15 million on a $60 million pre-money valuation. That is a 6x ARR multiple.

In 24 months, the multiple has been cut in half. Or more.

This is not a temporary pricing adjustment. It is a structural rerating of what traditional SaaS is worth in a world where AI is compressing the cost of building software and raising legitimate questions about whether today's SaaS incumbents will still own their categories in five years.

The multiple compression has two drivers that are reinforcing each other.

The first is macro.

Rising interest rates in 2022-2023 forced a repricing of growth assets globally, and SaaS multiples in the public markets corrected sharply from their 2021 peaks. Private market multiples follow public comps with a lag, and that lag is now fully closed.

The second driver is structural and more permanent.

AI is making it credible to ask whether any pure SaaS company with a horizontal workflow product has a durable moat. When a well-resourced competitor can replicate core functionality with an AI-native architecture in weeks or months, the premium investors used to pay for "software with high switching costs" gets questioned at every board meeting.

The combination of both hitting simultaneously is what created the compression.

And there is no reason to expect it to reverse.

The majority of VC-backed companies are traditional SaaS businesses, funded at multiples that made sense at the time.

Many are now in the $5 to $20M ARR range with real customers, solid retention, and teams that executed well.

Bankers are already reporting a growing pipeline of these companies exploring trade sales, and by most indications that pipeline is early.