David Sacks Says PE Buyouts Are Now Software’s Third Exit Path

Benzinga reported Thursday that venture capitalist David Sacks now views private equity software exits as a third legitimate path for founders. Speaking on the All-In Podcast in late April, Sacks argued that debt-fueled PE buyouts have filled a gap left by a stalled IPO market and sluggish M&A activity.

A Third Door Opens for Software Founders

Sacks said software historically offered two reliable exits: going public or getting acquired. Large PE firms have since added a third option by acquiring mature software businesses using significant debt financing. With both IPO and M&A windows constrained, that route is drawing increased attention from founders and their venture backers. Sacks framed PE deals as a viable fallback, though not a frictionless one. Founders should expect tighter deal terms, more active operational oversight, and far less reliance on financial engineering than in prior cycles.

How AI Is Destabilizing the SaaS Model

The podcast remarks came against a backdrop of notable pain in public software valuations. Sacks pointed to a structural shift driven by artificial intelligence. Enterprises are increasingly building their own AI-powered tools internally. That capability is reducing demand for off-the-shelf vertical SaaS products and weakening the sales motion that once made recurring software revenue so dependable. The result, Sacks said, is declining net revenue retention rates at some companies, with figures sliding from above 120% to as low as 80% in certain cases.

The Debt Problem at the Core of PE Deals

Private equity buyouts for software have long rested on an assumption of stable, predictable cash flows. Deals are typically structured with roughly one-third equity and two-thirds debt. That math demands consistent revenue performance to service the debt load. According to Adventis Advisors, the median enterprise value-to-revenue multiple for software companies stood at just 3.4x as of March. That compares to peaks above 18x in late 2021. Sacks sees that compression as a potential buying opportunity. But he also cautioned that PE firms relying on multi-year turnaround plans face real execution risk if AI continues reshaping demand faster than anticipated.

Background: Thoma Bravo and the Buyout Boom

The discussion was partly anchored in concerns around Medallia, a company backed by Thoma Bravo, one of the most active software-focused PE firms. Reports of missed sales targets at Medallia underscored the broader pressure building across the leveraged software universe. Thoma Bravo built its franchise on buying mature SaaS businesses, cutting costs, and expanding margins. That playbook now faces its most serious test as the AI transition accelerates. Sacks stopped short of declaring the model broken, but his framing suggested the assumptions underpinning it deserve serious scrutiny from both operators and investors.

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