The SaaS Meltdown Isn't About AI

AI isn't killing SaaS. It's exposing which companies were ever real businesses.

There's been a lot of discussion about the "Great SaaS Meltdown," and yes, AI is part of it. But the deeper issue: the capital structure of most software companies was broken long before AI showed up.

These companies raised 5-10x more VC than they needed, hired 5-10x more people than they needed, and optimized for revenue growth instead of margins. Silicon Valley romanticizes the biggest raises and the biggest headcounts, but more employees isn't an achievement — it's a cost.

This isn't an argument against raising venture capital. The issue is raising too much. Capital is a tool, not the goal.

Here's where it gets ugly: when valuations drop, the whole capital stack falls out of alignment. Investors don't fight for companies that aren't their winners — they double down on the portfolio companies that are working. Employees lose interest when their options are underwater. The board wants an exit, management wants runway, and no one's incentives point in the same direction.

The irony is that the future of enterprise software might actually be bright. AI agents need systems of record to operate, and more agents means more data flowing through CRMs, ERPs, and payroll systems. The TAM is expanding, not shrinking.

But the companies that will capture that value aren't the ones with broken capital structures. PE is already circling, ready to scoop up companies with real products and real customers, recapitalize them, cut the bloat, and run them like actual businesses. Thoma Bravo is calling this a "huge buying opportunity," and they're not wrong. Lean startups that never over-raised will win categories. The bloated growth experiments will get left behind.

Build a good business with solid fundamentals first. The rest follows.