LOCKED INSIDE: THE EXIT BOTTLENECK IN SOFTWARE PRIVATE EQUITY

Between 2021 and 2022, private equity funds allocated approximately $202 billion across 1,167 software companies in the United States. This volume created a significant need for liquidity. However, the exit window is reopening at a time when tolerance for elevated multiples has structurally declined, and artificial intelligence has begun to redefine the perceived value of traditional SaaS.

In 2025, exits totaled roughly $84 billion, a 76% increase compared to 2024, yet still insufficient relative to the accumulated stock of assets awaiting exit. The mismatch between capital invested and capital returned is forcing managers to choose between realizing relative losses or extending investment cycles.

This timing trade-off is further complicated by technological dynamics. Exiting now often implies returns below the initial entry cost; delaying requires additional capital consumption and slows the recycling of capital into new theses. AI intensifies this equation by accelerating the repricing of software. Since early 2025, companies such as Salesforce, ServiceNow, and Adobe have seen declines exceeding 30%, reflecting a shift in corporate budgets from incremental SaaS toward AI-native solutions. Data from BDO indicates that average revenue growth in the sector fell from 21% in 2021 to 12% in 2024.

In this environment, risk asymmetry across assets is widening. Software exposed to functions that are easily automated—such as CX, GTM, and call centers—faces greater vulnerability to substitution. In contrast, cybersecurity and specialized vertical solutions with strong data moats maintain operational resilience and stronger pricing power.

Demand for assets is also being reshaped. Sponsor buyouts declined from more than 50% to around 42% of exits, while strategic and financial buyers are demanding deeper discounts, tighter covenants, and are avoiding categories with high technological uncertainty. At the same time, private equity acquisitions exceeded exits in 2025, signaling that appetite remains, but is now anchored in new valuation frameworks and operational transformation theses.

In response, managers are accelerating technological retrofits—such as agent factories and AI-based automation—and seeking direct exposure to AI-native companies, illustrated by recent moves from major firms into assets such as Norm AI, OpenAI, and Anthropic. This adaptation, however, creates tension in capital allocation: resources that could facilitate exits are instead being redirected toward the technological transition of existing portfolios.

A potential SpaceX IPO, with a valuation possibly approaching $50 billion, introduces another relevant variable. If it materializes during upcoming exit windows, it could intensify competition for institutional attention and allocation capacity, further raising the opportunity cost for managers already under pressure to generate liquidity.

LOCKED INSIDE: THE EXIT BOTTLENECK IN SOFTWARE PRIVATE EQUITY

AI-Driven Repricing and Exit Timing in Software Private Equity

By DealMaker Insights | DealMaker