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👋 Hi, it’s Kyle Poyar and welcome to Growth Unhinged, my weekly newsletter exploring the hidden playbooks behind the fastest-growing startups. Today’s newsletter is a ✨ bonus ✨ edition. ICYMI: your premium perks got an upgrade, what needs to change when AI agents start buying, and it’s not too late to take the 5-minute monetization survey.
SaaS selloff. SaaSpocalypse. SaaSmageddon. SaaSchmigadoon. (OK, I made that last one up).
The names are a bit ridiculous. If you set that aside, the data on SaaS is certainly concerning.
VC firm Redpoint found that public SaaS stocks are down 20% in 2026. Software is the single worst performing sector in the S&P 500. The median public SaaS company now trades at a 4.1x multiple of next twelve month (NTM) revenue — the lowest multiple of the past decade (it peaked above 20x in 2020). They even compared SaaS to the print newspaper collapse (ouch!).
Others, including storied PE investor Thoma Bravo, are a bit more bullish — although even they just decided to wind down their software growth equity arm. Thoma Bravo notes that public software companies are still growing (average = 17% revenue growth), have healthy margins (average = 74% gross margins), and have durable revenue (average = 80-95% revenue endurance, far higher than private SaaS companies).
I’d argue that much of SaaS is still quite sticky. And SaaS companies have advantages they can choose to exploit in this AI era:
It’s extremely onerous to build and maintain homegrown enterprise software, even if Claude Code makes it technically feasible.
Systems of record like Salesforce or ServiceNow sit on extremely valuable data that AI-native companies need.
Frankly, many enterprise buyers would prefer to adopt new AI capabilities from their existing vendors rather than vet net-new startups.
Let’s focus on the bull case for software: how the SaaS empire can strike back. I recently discussed this on the Mostly Growth podcast, and today I’ll go even deeper. Instead of pretending there’s a single right answer, I’ll lay out the actual paths companies are taking, and what’s attractive or dangerous about each of them.
The paths left for legacy SaaS
Here’s the TL;DR:
Path 1: Ignore it (for now).
Aim for 20%+ growth and 20%+ profitability, i.e. solid Rule of 40 trajectory.
The play here would be to stick to what you’re best at, keep your existing customers happy, and partner with AI-native startups that can extend your value proposition.
Opportunistically look to scoop up adjacent AI-native startups when (if?) their valuations come down to Earth.
Best fit: vertical SaaS, mission critical products.
Path 2: Get (really) profitable.
Aim for 10%+ growth and 40-50%+ profitability, i.e. Rule of 60 trajectory.
This is the classic PE-style “run it for cash” approach: cut costs, focus on your most valuable customers, cede the low end of the market, push for longer contracts, and raise prices where you have an effective monopoly.
This buys optionality to reinvent the business later.
Best fit: PE-backed or bootstrapped SaaS companies.
Path 3: Go on the AI offensive.
Aim for (accelerating) 30%+ growth and break-even profitability.
If you’re an established SaaS company, you have things that AI-native startups don’t. You have distribution, a large install base, brand trust, and existing workflows that customers rely on. In theory, that should give you a strong position to build and launch AI capabilities.
Do what it takes to lock-in AI revenue even if that means dropping prices.
Best fit: SaaS companies with patience and conviction.
Path 4: Pivot the business.
Aim for 100%+ growth from the AI product even if the legacy SaaS business is shrinking (or steadily goes to zero).
You decide that the future is so different that the existing business doesn’t matter anymore, and you reorganize entirely around the new opportunity.
This requires cash in the bank to fund growth — at least 18 months of cash runway with projected burn.
Best fit: Smaller SaaS companies with plenty of cash.
When I think about all of these options, the one that feels realistic for the majority of SaaS companies is some version of going on the offensive (Path 3). This can be done either within the existing SaaS business (3a) or by carving out a team or even a separate brand that has more freedom to operate with a different set of assumptions (3b).
The key distinction is which companies will really commit and accept the trade-offs that come with it. The worst outcome is trying to hedge across all of them and never really moving in any direction.
Let’s dive into the paths, what they look like, and who they’re for.
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