Today, we’re thrilled to sit down with Vijay Raina, a renowned expert in enterprise SaaS technology and tools, as well as a thought leader in software design and architecture. With years of experience navigating the ever-evolving landscape of SaaS business models, venture capital trends, and technology mergers and acquisitions, Vijay offers unparalleled insights into the current challenges and opportunities facing the industry. In this conversation, we’ll explore the seismic shifts in SaaS exit strategies, the overwhelming dominance of AI in funding and M&A activity, the evolving expectations of private equity and public markets, and the strategies SaaS companies must adopt to thrive in this new era.
How have you seen the SaaS exit landscape transform in recent years, especially for companies in the $20M to $50M ARR range?
Over the past few years, the SaaS exit landscape has undergone a dramatic transformation. It used to be that if you built a company to $20M or $50M in ARR with decent growth, you could almost bank on an exit—whether through private equity or a strategic acquisition. That predictability is gone. Today, the bar is much higher, and exits at that revenue range are far less common unless you’re in a hot vertical like healthcare IT or cybersecurity, or you’ve deeply integrated AI into your offering. The traditional playbook just doesn’t work anymore because buyers are looking for exceptional scale or unique differentiation, not just solid fundamentals.
What do you believe are the driving forces behind the decline in traditional exit paths like private equity or strategic acquisitions?
There are a few key forces at play. First, the rise of AI has shifted buyer priorities—both private equity and strategic acquirers are chasing capabilities that promise transformative growth, not just steady revenue. Second, private equity firms are sitting on a backlog of portfolio companies they need to exit before taking on new deals, which limits their appetite. And finally, the market dynamics have changed; valuations are tighter, with software companies selling closer to 15x EBITDA rather than the 25x we saw in the past. Buyers are more selective, focusing on operational excellence and clear paths to high margins, which many mid-tier SaaS companies struggle to demonstrate.
How has the surge in AI funding influenced the venture capital landscape for traditional SaaS businesses?
The impact of AI on VC funding has been staggering. In the first half of 2025 alone, AI startups captured over half of global venture capital, with deal sizes ballooning to an average of nearly $36M. Traditional SaaS, on the other hand, has seen a collapse in mega-rounds—down to just a handful compared to over a hundred in 2021. If you’re a SaaS founder without an AI-native story, you’re fighting for a shrinking pool of capital. VCs are prioritizing outlier growth potential over steady, profitable businesses, which leaves many traditional SaaS companies struggling to raise the growth equity they need.
What challenges does this AI focus create for SaaS founders who haven’t integrated AI into their core offerings?
For SaaS founders not leveraging AI, the challenges are immense. They’re not just competing against other SaaS companies but against AI startups that promise exponential growth, even if their valuations are inflated. This means reduced access to capital, slower growth trajectories, and diminished exit opportunities. Without an AI story, it’s harder to capture the attention of investors or buyers who are looking for the next big thing. These founders often have to pivot toward profitability sooner than planned, focusing on sustainable operations rather than aggressive expansion.
How has private equity’s approach to SaaS acquisitions evolved in 2025, and what’s driving their selectivity?
Private equity has cooled significantly on SaaS in 2025, becoming far more selective. They’re still active—deal counts are up—but the value of transactions is down, and the focus is on category leaders with scale or AI integration. Firms are prioritizing companies that can show a clear path to 40%+ EBITDA margins or have defensible moats in vertical markets. The selectivity comes from a combination of factors: a backlog of existing portfolio companies, a tougher exit environment, and a shift away from relying on multiple expansion for value creation. PE now demands real operational transformation, not just financial engineering.
Can you explain how corporate M&A activity has shifted with the intense focus on AI capabilities?
Corporate M&A has gone all-in on AI. Strategic buyers—think big tech and enterprise software giants—are writing billion-dollar checks for AI capabilities, whether it’s cloud security with AI-powered threat detection or data management solutions. In 2025, we’ve seen deal volumes for AI acquisitions grow by over 30% year-over-year. For non-AI SaaS companies, this means they’re often overlooked unless they offer massive scale or niche vertical dominance. The mandate for corporate development teams is clear: build or buy AI to stay competitive, which sidelines many solid but less flashy SaaS businesses.
What are the current hurdles for SaaS companies considering an IPO, and how have expectations changed?
The hurdles for IPOs are brutal right now. The bar has risen to at least $400M in ARR with 30% growth, though 50-60% is ideal. Compare that to a decade ago when $100M in revenue at 50% growth could get you public. Today, the public markets want the next big winner—think companies with massive scale, high growth, and profitability. Smaller SaaS companies under $400M ARR with moderate growth are seen as too risky compared to established players with strong free cash flow margins. The market just isn’t interested unless you’re exceptional.
What strategies would you recommend for mid-tier SaaS companies that are solid but not exceptional in today’s market?
For mid-tier SaaS companies—those in the $20M to $100M ARR range with decent growth—my advice is to focus on sustainability and differentiation. First, get profitable or close to it; the market no longer rewards high burn for growth. Second, invest in AI capabilities that enhance your core product without chasing unsustainable valuations—meet real customer demand for smarter workflows. Third, consider vertical specialization; buyers are gravitating toward niche solutions with high switching costs. Finally, extend your runway indefinitely. Don’t bank on a quick exit. Build a business that can compound over time through strong fundamentals like high retention and efficient growth.
What is your forecast for the SaaS industry over the next few years, especially regarding exits and AI integration?
Looking ahead, I think the SaaS industry will see a gradual normalization of AI investment over the next 18 to 36 months, but we’re not there yet. Exits will remain challenging for mid-tier companies, though private equity and corporate buyers will eventually return—likely with a focus on operational excellence and AI-enhanced offerings. The IPO bar will stay high, pushing more companies to stay private longer or explore creative liquidity options like continuation funds. For AI integration, it’s a genuine tailwind for established SaaS players if done profitably. Those who can balance innovation with strong fundamentals will be positioned to win when the market resets. The opportunity is massive, but the path is tougher than ever.
