Should a slow-growing, cash-constrained private software company sell to private equity rather than pursue other paths?

Mitchell Green · Mar 28, 2025

The rise of software-focused and mid-market private equity buyers has created a third exit path beyond IPO and strategic sale for slow-growing software companies, and about a third of Lead Edge's exits have come from private equity.

A strategic buyer won't just show up and these companies will never go public, so rule of 40 is the only route to a buyer; sitting on boards chasing pivots is a waste of investor time

Scope: applies to companies like $120–130M revenue growing 18%; acknowledges his own firm made similar mistakes in 2020–22

16:54 20VC: Why Traditional VC is Broken: How VCs Learned Nothing from 2021 | Why LPs are More Important than Founders & Advice to Emerging Managers | Bull Case for Bytedance & Why TikTok's Ban Doesn't Matter with Mitchell Green, Lead Edge Capital

Amit Bendov · Sep 12, 2025 · hedged

A PE sale can make sense for a software company that isn't growing fast, lacks a long cash runway, and can't IPO, because investors and employees still need liquidity.

Somehow people need to get paid, and there is no other exit path available.

Scope: declines to apply it to Outreach specifically; doesn't know their cash position

53:16 20VC: Why AI SDRs are BS and Do Not Work | How to Use AI in Your Sales Team and Process to Win Today | What Skills Do All New Reps Need to Have in an AI First World with Amit Bendov, CEO @ Gong

Mitchell Green · Mar 28, 2025

Most of these companies should accept they're not the next Datadog or Snowflake and pivot to rule of 40, which requires high gross margins and 90%+ gross dollar retention

With high margins and high retention you can get to breakeven and sell the business; with 70-80% gross retention it's much harder and with low retention it's hopeless

Scope: depends on retention being high — 95% gross dollar retention works, 70-80% is much harder

31:24 20VC: Why Traditional VC is Broken: How VCs Learned Nothing from 2021 | Why LPs are More Important than Founders & Advice to Emerging Managers | Bull Case for Bytedance & Why TikTok's Ban Doesn't Matter with Mitchell Green, Lead Edge Capital

Harry Stebbings · Sep 12, 2025

To be attractive to private equity a software company needs to be both growing ~20% and profitable, which is the hard part.

53:34 20VC: Why AI SDRs are BS and Do Not Work | How to Use AI in Your Sales Team and Process to Win Today | What Skills Do All New Reps Need to Have in an AI First World with Amit Bendov, CEO @ Gong

Harry Stebbings · Mar 28, 2025

A whole generation of SaaS companies with $50–200M revenue, 10–20% growth and no profitability are 'living dead' — too small for private equity and unable to exit

They raised a lot of money but growth has collapsed to the mid-teens and they aren't big enough to attract PE buyers

16:26 Too small for pe and unable to exit becomes living dead

Michael Eisenberg · Jun 19, 2024

Slow-growth but profitable companies in control of their own destiny can grind it out until an exit market opens, or exit via large secondary portfolio trades or stock buybacks

Cash-generative businesses can buy back stock and reduce dilution while waiting for liquidity

43:50 Grind it out via secondaries and buybacks until exit market opens

David Schneider · Sep 11, 2024

Some companies that raised at 2020-21 prices and plateaued are now worth more as cash than as independent companies and should return capital or sell assets

They aren't reaccelerating and lack a path back to their valuations; a few have already chosen to refund cash to investors and sell off the assets

40:37 Worth more as cash than as a going concern should return capital or sell assets