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.

The flood of similar assets all seeking exits in the same window, is building. The question I keep asking myself is what the right response is, and I am not sure anyone has a definitive answer yet.

The honest framing is not that there is a right answer. It is that I see five distinct paths, each with a different risk profile, and the right one depends entirely on the specific company, team, and timing.

1. Sell now, while the window is open

For companies where the competitive position is genuinely softening and the transformation story is not credible, an early and disciplined trade sale process is likely the highest-expected-value outcome.

6x ARR today is probably a better result than 3-4x in 2027 when the glut of similar assets peaks and buyers have full negotiating leverage.

The difficulty is psychological more than analytical: accepting that the original return profile is no longer realistic requires a conversation most boards are not yet ready to have.

2. Become the consolidator

Some of these companies may be better positioned as buyers than as targets, and the current dislocation creates a real window for disciplined roll-ups.

Competitors facing the same multiple compression are available at 3-4x revenue, and a company that can acquire and integrate efficiently can build toward a scale and exit profile that organic growth alone cannot deliver.

The preconditions are demanding: available capital, an M&A-capable management team, and the operational bandwidth to execute while still running the core business.

3. Pursue a genuine AI-native transformation

This is where most board discussions land first, and where the most wishful thinking lives.

The transformations that actually work are not about bolting an AI feature onto an existing product. They require a real architectural rethink built on proprietary workflow data that a new entrant could not easily replicate.

I think this path is credible for a minority of companies with the right founder profile and data assets. For the majority, the honest question is whether the transformation is real or whether it is a way of avoiding the harder conversation.

4. Reset the structure via continuation vehicle or recap

When a company is fundamentally sound but the fund timeline does not match the time needed to realize full value, resetting the structure can be the most rational move.

A continuation vehicle allows aligned LPs to roll their exposure at a reset valuation, and brings in fresh capital with a longer horizon. A recapitalization with a growth equity or PE partner can achieve something similar while adding operational or M&A capability.

These are not rescue mechanisms. Used proactively, they preserve optionality rather than closing it off.

5. Return capital via a management buyout

For companies that are profitable or near-profitable with a stable customer base, backing the management team to buy out the VC investors may be the most honest outcome for everyone involved.

It returns capital to LPs at a fair valuation, rewards a team that built something real, and avoids the alternative of holding an asset indefinitely while waiting for a market that may not come back.

This option is underused partly because it does not fit the VC narrative of building toward a large exit. But the narrative should serve the outcome, not the other way around.

None of these options is obviously correct, and the right answer is different for every company.

What I do believe is that waiting, without a deliberate framework for why waiting is the right call, is itself a decision, and often not the best one.

The VCs who navigate this period well will not necessarily be the ones with the cleanest portfolios going in.

They will be the ones willing to engage with uncomfortable questions early, bring honest options to their founders and boards, and act before the market forces their hand.

I do not have all the answers here.

But I think asking the questions now, rather than in 18 months, is where the work starts.

Stay driven,
Andre

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