Navigating The New Liquidity Landscape

In the world of Software-as-a-Service (SaaS), a concerning trend has emerged over the past 24 months: a significant slowdown in liquidity events. This is now a topic of numerous public debates, from Jason Lemkin on X, to Thomas Laffont of Coatue and subsequently Tomasz Tunguz of Theory Ventures and his posts on X. What are the factors contributing to this “quiet crisis” and its potential implications for the SaaS ecosystem? And are Semiconductor companies really the new SaaS in terms of valuations, margins and customer appetite?

The Golden Era: 2020-2021

To understand the current situation, we must first look back at the unprecedented boom period of 2020-2021. During this time, the SaaS industry experienced a surge in initial public offerings (IPOs), mergers and acquisitions (M&A), and venture capital funding. Notable exits during this period included:

• Salesloft’s $2.4 billion acquisition
• Pipedrive’s $1.5 billion deal
• Greenhouse’s exit at a valuation of nearly $1 billion

The Abrupt Slowdown: 2022-2024

Since December 2021, the landscape has shifted dramatically. According to data compiled by Tomasz Tunguz, M&A activity among the top 10 software acquirers has declined by over 90% compared to 2021 levels. This sharp decrease in acquisitions represents a significant change in the liquidity landscape for SaaS companies.

Since December 2021, the landscape has shifted dramatically:

• SaaS IPOs have plummeted, with only 3 companies going public since 2021: Klaviyo, Rubrik, and OneStream.
• M&A activity among the top 10 software acquirers has declined by over 90% compared to 2021 levels.
• The median time lapse between rounds in 2024 was 28 months — by far the longest span since 2012..

Factors Masking the Liquidity Crunch

Several factors have partially obscured the severity of the liquidity crisis:

1. Continued VC Activity: While down from 2021 peaks, venture capital funding in SaaS has remained relatively robust, particularly for AI-focused startups.
2. Selective Late-Stage Liquidity: Top-tier companies like Stripe and OpenAI have conducted significant tender offers, providing some liquidity for employees and early investors.
3. Public Market Performance: Despite the IPO slowdown, some public SaaS companies have shown resilience in the stock market.

The Good: Reasons for Optimism

1. IPO Pipeline: Several high-profile SaaS companies are poised for potential IPOs, including Canva, Databricks, Wiz, and ServiceTitan. These IPOs could potentially unlock significant market value.
2. Private Equity Activity: PE firms remain active in the SaaS space, with notable recent deals including Vista Equity’s $8.4 billion acquisition of Smartsheet.
3. Strategic Acquisitions: While reduced, strategic acquisitions continue, such as Atlassian’s acquisition of Loom for approximately $1 billion in 2023.

The Bad: Persistent Challenges

1. Compressed Valuations: Public SaaS multiples remain well below 2021 peaks, making M&A less attractive for potential acquirers.
2. Higher IPO Bar: The few SaaS IPOs since 2021 (Klaviyo, Rubrik, OneStream) have all been for companies with substantial annual recurring revenue (ARR) and high growth rates, raising the bar for companies considering going public.
3. Reduced M&A Appetite: Large tech acquirers have become more conservative in their acquisition strategies.

The Ugly: Structural Headwinds

1. Antitrust Concerns: Increased global scrutiny of tech M&A is chilling large deals. A notable example is the blocked $27 billion Adobe-Figma merger.
2. Regulatory Uncertainty: Evolving regulations around AI and data privacy create additional complexity for potential acquirers.
3. Geopolitical Tensions: US-China tensions and other geopolitical factors are complicating cross-border tech deals.

Implications and Second-Order Effects

1. Extended Runway Requirements: SaaS startups are now aiming for longer runways, driving increased focus on profitability and capital efficiency.
2. Talent Retention Challenges: With reduced liquidity events, companies are exploring alternative compensation structures to retain top talent.
3. Innovation Slowdown: Reduced M&A activity may lead to complacency among large incumbents. As Thomasz Tunguz points out, the lack of acquisition pressure could reduce the sense of urgency for big companies to innovate or respond to emerging competitors.
4. Consolidation of Power: The inability of large tech companies to acquire smaller innovators may paradoxically increase their market dominance.
5. Evolving Exit Strategies: Companies are exploring alternative liquidity options, such as direct listings and structured “acqui-hires” that avoid traditional M&A regulatory scrutiny.

Looking Ahead: Potential Catalysts for Change

1. Macroeconomic Shifts: A sustained reduction in interest rates could reignite M&A activity.
2. Regulatory Clarity: Clearer antitrust guidelines could provide a framework for larger tech acquisitions.
3. Market Adaptation: As the industry adjusts to the “new normal,” new valuation models and deal structures may emerge.
4. Semis are the new Saas: Semiconductor companies, both in valuations, margins and VC apetite have replaced Saas companies.

Conclusion: Navigating the New Liquidity Landscape

The SaaS industry finds itself at a critical juncture. The dramatic slowdown in liquidity events since late 2021 has far-reaching implications for startups, investors, and the broader tech ecosystem. While challenges persist, there are also reasons for cautious optimism.

As the industry adapts to this new reality, we can expect to see:

1. A renewed focus on sustainable growth and profitability
2. Innovation in compensation and retention strategies
3. Exploration of alternative liquidity mechanisms
4. Potential shifts in the competitive dynamics between incumbents and disruptors

For SaaS founders, employees, and investors, the key will be to remain agile, patient, and focused on long-term value creation. While the path to liquidity may be longer and more complex than in recent years, the fundamental growth drivers of the SaaS industry remain strong.

The companies that successfully navigate this “quiet crisis” may emerge stronger, more resilient, and better positioned to capitalize on the next wave of opportunities in the ever-evolving SaaS landscape.