Antoine Vial
SaaS multiples are compressing in 2026 — not because SaaS is dying, but because the market is finally repricing risk. Here’s what’s really driving the reset and what founders need to do about it.
SaaS multiples are compressing in 2026 — and the usual explanations aren’t telling the full story. Yes, lines of code have never been cheaper. Tools like Cursor, GitHub Copilot, Claude Code, and countless open-source models have made software development faster and more accessible than ever.
So why are SaaS multiples compressing even as AI promises to supercharge everything? Why are founders with strong growth still seeing their valuations reset? And why does the common narrative about “AI dominance” keep missing the point?
Let’s unpack what’s really happening — and why the common narrative about “AI dominance” is missing the point.
If you scroll through /r/SaaS, founders constantly debate how AI is resetting multiples — with some claiming AI SaaS multiples north of 25× revenue versus traditional SaaS at 2.5–7×. And there’s real fuel behind that argument.
Lovable reportedly hit $100M ARR within months. Clay leveraged AI-driven workflows and community-led growth to reach unicorn territory at record speed. Wiz hit $100M ARR in ~18 months — one of the fastest enterprise ramps ever. Deel crossed $100M ARR in under three years while expanding globally at extraordinary velocity.
Speed is real. Acceleration is real. AI leverage is real.
But now let’s zoom out.
If AI alone were permanently expanding multiples, why did HubSpot’s stock drop sharply in the last year, despite strong fundamentals, steady growth, and meaningful AI integration? HubSpot is profitable. It has strong NRR. It has category authority. It ships AI features aggressively. And yet — public markets still compressed its multiple along with the broader SaaS sector.
That’s the reality check. Public markets are saying: we care about growth quality, margin profile, and capital efficiency — not just AI positioning. So while AI-native companies can command massive private valuations during early hype cycles, public comps are pricing software based on durable revenue, predictable expansion, profit trajectory, and competitive moat. Not just how many AI features are on the homepage.
This creates a split market: headline AI unicorns on one side, public SaaS compression on the other. AI is accelerating timelines — but it hasn’t eliminated valuation discipline.
In 2021, public SaaS companies were trading at 15× to 30× forward revenue. Some outliers pushed beyond that. Cheap capital, zero interest rates, growth at all costs.
Fast forward to today. Most public SaaS companies are trading closer to 5×–8× revenue. Even strong performers with solid retention and healthy margins have seen their multiples compress by 50%+ from peak levels. The Bessemer Cloud Index reflects that reset clearly: revenue multiples across the sector normalized sharply after 2022 and have not returned to prior highs.
And this is where the confusion begins. Because at the same time public multiples are compressing, you have Lovable, Clay, Wiz, and Deel delivering headline growth numbers that make founders think multiples are back. They’re not. What’s happening is bifurcation.
Public markets are compressing average SaaS. Private markets are still aggressively pricing outliers. And that distinction matters — because public market multiples anchor private valuations.
VC math is simple: if public comps trade at 6× revenue, late-stage private rounds cannot sustainably price at 20× forever. Eventually, gravity wins. That’s why down rounds increased dramatically post-2022, growth-stage fundraising slowed, and investors shifted from TAM storytelling to unit economics scrutiny.
What earned Wiz and Deel their premium had nothing to do with category labels. Wiz solved a burning enterprise problem, achieved hypergrowth with enterprise-grade retention, embedded deeply into security workflows, and became category-defining quickly. Deel nailed global distribution, built operational infrastructure at speed, and solved compliance complexity across borders. Clay and Lovable show AI can compress time-to-ARR — but speed alone doesn’t guarantee sustained multiples.
What determines valuation durability is what happens after the first $10M ARR: retention, expansion, moat, and category authority.
The compression didn’t happen because SaaS stopped growing. It happened because the market re-priced risk and capital efficiency. When capital was free, investors paid for potential, vision, and topline velocity. When capital costs money, investors pay for cash flow trajectory, retention strength, sales efficiency, and operating leverage. This is not anti-AI. It’s pro-discipline.
Multiples are no longer granted. They are earned — through Rule of 40 performance, high net revenue retention, clear GTM repeatability, and capital efficiency. AI can enhance those metrics. But it cannot replace them.
Here’s the uncomfortable truth: AI makes it easier to build software. It does not make it easier to build a business.
Code is cheaper. APIs are abundant. LLMs are accessible. Two engineers with Cursor can now ship what once required a team of ten. So what happens? Supply explodes. And when supply explodes, differentiation collapses.
This is why we’re seeing an explosion of AI “wrappers” — same model, different UI, slightly different ICP pitch, a landing page that says “powered by AI.” Many AI-first tools generate initial excitement and then churn, because they optimize for wow factor, not workflow depth. And workflow depth is where valuation durability lives.
Compare that to Wiz, which didn’t just build a feature — it embedded itself into cloud security posture management, a mission-critical function tied to risk, compliance, and board-level visibility. Once embedded, switching costs rise dramatically. Or Deel, where payroll and compliance across borders is operationally complex — once integrated into HR, finance, and legal workflows, it becomes infrastructure. Infrastructure companies trade at premium multiples because they solve ongoing complexity, not surface-level problems.
When AI reduces engineering costs, the scarce resource becomes distribution mastery, data ownership, workflow integration, organizational change management, and regulatory trust. AI does not eliminate these. It magnifies them.
You can grow from 0 to $10M ARR quickly with AI leverage. But can you maintain 120%+ NRR, low logo churn, and expanding ACVs? That’s where valuation is determined. Investors don’t just price growth speed. They price growth durability.
The real test of any AI company is simple: if OpenAI improves tomorrow, if open-source models catch up, if a competitor clones your UX — do you still win? If the answer is no, you don’t have a valuation moat. You have a feature. And markets are getting ruthless at distinguishing between the two.
It’s tempting to say SaaS multiples are down, AI is inflating everything, and fundraising is broken. None of that is fully accurate. What’s actually happening is market bifurcation.
There are now two very different SaaS markets.
Commodity SaaS
Light differentiation, weak retention, shallow workflow integration, growth dependent on paid acquisition, AI bolted on as a feature. These companies are seeing compressed multiples, 5× revenue or less. Investors are cautious, growth capital is selective, and due diligence is brutal.
Category-Defining SaaS
Solves painful, expensive problems, strong net revenue retention, embedded deeply into workflows, clear category positioning, AI used as leverage rather than marketing. This is where Wiz, Deel, and the strongest AI-native players sit.
And here’s the nuance: they’re not getting premium multiples because they’re “AI.” They’re getting premium multiples because they’re dominating a category, expanding revenue predictably, demonstrating operational excellence, and scaling efficiently. AI compresses their execution timeline. It doesn’t create their moat.
Valuation now reflects confidence in dominance, not just growth speed. This is a healthier market — it forces clarity. You’re either building something that wins, or something that survives. And markets price those very differently.
If you’re building SaaS in 2026, the question is not how do I add AI. It’s: how do I become indispensable?
Obsess over retention.
NRR is the most under-discussed valuation driver. 120%+ NRR signals real product-market fit, workflow depth, pricing power, and defensibility. AI can accelerate acquisition. Retention proves value.
Build distribution moats.
In a world where anyone can ship features, distribution becomes your edge — community, partnerships, creator-led growth, enterprise trust. Look at Clay’s community-driven GTM. Look at Deel’s global partnerships. Look at Wiz’s enterprise security positioning. These aren’t product hacks. They’re distribution machines.
Use AI to improve margins, not just features.
AI can reduce support costs, automate internal ops, increase engineering productivity, and improve onboarding efficiency. If AI improves your operating leverage, your Rule of 40 improves — and Rule of 40 directly correlates with valuation premium. That’s the real AI valuation unlock, not a chatbot feature.
Focus on solving expensive problems.
The biggest valuation premiums go to companies that solve compliance risk, security exposure, financial inefficiency, operational bottlenecks, and revenue leakage. When your product saves millions, your pricing power increases. And pricing power is valuation fuel.
Build for durability, not just velocity.
AI rewards speed. Markets reward durability. There’s a difference. Speed gets you to $10M ARR. Durability gets you to a premium exit.
If you zoom out, what’s happening right now isn’t a SaaS collapse. It’s SaaS growing up.
For over a decade, the dominant narrative was: raise fast, grow fast, figure out margins later, TAM storytelling wins. That worked in a zero-rate environment. But capital now has a cost again, which means markets are asking a simple question: is this business durable?
AI is accelerating the maturation process. When building becomes easier, only businesses with deep integration, real pricing power, structural advantage, and efficient growth stand out. This is similar to what happened with e-commerce — when Shopify made storefronts easy to build, millions of stores launched. But only brands with strong distribution, strong brand, and strong supply chains survived long term. AI is doing the same thing to SaaS: lower barrier to entry, higher bar for dominance.
This is not bearish. It’s evolutionary. And evolution favors the adaptable.
Let’s come back to where we started: lines of code have become cheaper than ever. But solving complexity hasn’t. That’s the entire story.
AI reduces the cost of creation. It does not reduce organizational friction, enterprise procurement cycles, change management resistance, workflow entrenchment, or regulatory pressure. And those are the forces that determine retention, expansion, pricing power, and valuation.
The next decade of SaaS will reward companies that combine AI leverage with distribution excellence, embedded workflow depth, and operational discipline. Not companies that simply ship faster.
Anyone can build features now. Very few can build institutions. And markets price institutions differently.
AI isn’t taking over SaaS valuations. It’s exposing which companies deserve them.
If you’re a founder right now, ask yourself one question:
Are we using AI to impress users — or to become indispensable?
Because the future multiple of your company will be determined by that answer.
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