Away From the Spotlight
Public Markets and Software
From Bloomberg last week:
In the span of two days, hundreds of billions of dollars were wiped off the value of stocks, bonds and loans of companies big and small across Silicon Valley. Software stocks were at the epicenter, plunging so much that the value of those tracked in an iShares ETF has now dropped almost $1 trillion over the past seven days.
On January 30, 2026, Anthropic launched 11 role-specific plug-ins for Claude Cowork aimed at knowledge-work functions such as sales, marketing, finance, and legal. And thus began the “SaaSmageddon”: over the next five days, we saw a massacre of public software companies. The S&P 500 Software & Services index fell around 8%. Salesforce slid around 9% over the week. ServiceNow fell more than 14%.
Frankly, this has been a long time coming for software companies. In 2023, education software giant Chegg lost 48% of its market cap in a single day after warning that ChatGPT was pressuring growth on its Q1 earnings call. In 2024, Klarna launched an AI assistant that handled roughly two-thirds of customer-service chats in its first month, one of the first signals that AI could reduce seats across traditional SaaS. Throughout 2025, sentiment toward software continued to cool as sales cycles stretched and investors grew more anxious that customers would build tools in-house rather than expand SaaS spend. On Sprinklr’s Q1 2026 earnings call, management pointed directly to longer, more cautious deal timelines amid macro uncertainty. And on both Braze’s Q3 FY2026 and monday.com’s Q4 2025 earnings calls, management teams were pressed on whether customers building more tools in-house could push churn higher and weigh on gross retention.
Ultimately, the launch of Anthropic’s Claude Cowork plug-in wasn’t the root cause of the massacre last week. It was simply the catalyst that turned the last two years of skepticism into a full-blown sell-off. Therefore, while many analysts argue the sell-off was an overreaction, a quick rebound may be unlikely. The doubts have been building in the background for years, and it’s unlikely that sentiment will reset.
Unfortunately for public software companies, this is unambiguously bad news. Most legacy vendors have to pivot toward agentic AI offerings. They can build those capabilities through R&D, but that path is often slow and cumbersome. M&A offers a much faster alternative. By buying AI-native companies with proven products and leveraging the incumbent platform’s existing sales motion, customer relationships, and implementation ecosystem to drive upsell and cross-sell, software companies can quickly integrate AI-native solutions without relying on reinventing their R&D around agentic AI.
However, AI-native assets are expensive, and many acquisitions require at least some equity consideration. When public software stocks sell off, that currency weakens immediately. In that sense, the market’s skepticism actively constrains the very M&A that could accelerate the AI pivot. The result is a vicious cycle in which weaker equity currency leads to fewer strategic deals, which in turn slows the AI transition, further eroding investor confidence. Ultimately, it is far more difficult for public software companies to reinvent themselves quickly enough.
Private Markets and Software
This raises a natural question: Is there a way for software companies to execute the AI pivot away from the constant scrutiny of public markets? The clear answer is the private markets. Private equity firms have already started capturing that opportunity. After a post-COVID period of overpaying for assets, many sponsors have faced muted private-market returns as valuations reset while public software multiples have continued to compress. That widening gap set the stage for a surge in take-private activity in 2025, as sponsors step in to buy legacy software companies, reposition them for an AI world, and rebuild outside the public spotlight.
One of the largest enterprise software take-privates last year was Thoma Bravo’s $12.6 billion acquisition of Dayforce. Dayforce is a legacy HCM vendor whose valuation had fallen sharply from its post-COVID peak and continued to slide through 2025 as AI-driven skepticism weighed on the broader software sector. So while Thoma Bravo paid a 32% premium to the unaffected share price ahead of the announcement, the deal was still struck at a discount to Dayforce’s 52-week high and only represented an approximately 7x revenue multiple.
While Thoma Bravo was able to acquire a scaled software franchise with a strong revenue profile at an attractive valuation, Dayforce gets something just as valuable: the environment to pursue its AI transformation away from the quarter-to-quarter pressure of the public markets. Or as CEO David Ossip claimed in Dayforce’s deal announcement:
We are partnering with a truly special organization to accelerate our business - with our focus, resources, and product innovation all laser-pointed on leaping forward as the HCM leader for a world of work shaped by AI.
Growth in Private Markets
It isn’t only legacy software companies that are reaping the benefits of private markets. Many high-growth startups are also staying private longer. Private capital has exploded with deeper and more flexible financing options that can now support large, high-growth companies such as Databricks, Anthropic, SpaceX, and OpenAI.
Take Databricks: it just closed its Series L round, raising $5 billion at a $134 billion valuation, which represents a ~25x revenue multiple on ~65% YoY revenue growth. Meanwhile, Databricks’ closest public comp, Snowflake, saw nearly 20% of its market cap wiped out last week despite not being a pure-play SaaS business.
When you compare the two companies, both are free cash flow positive. But Snowflake is “only” growing revenue at roughly 29% YoY and trades around 12.5x revenue. On a growth-adjusted basis, Databricks is actually cheaper. Its last private round implies a roughly 0.38x growth-adjusted revenue multiple, while Snowflake trades at a ~0.43x growth-adjusted revenue multiple. Databricks also appears to win on retention metrics. Snowflake’s 125% NRR is exceptional for enterprise software, but Databricks’ NRR is above 140%. In other words, Databricks’ financial profile is more than ready for the public markets. However, with abundant late-stage financing, Databricks can remain private, sidestepping public-market volatility and quarter-to-quarter scrutiny, while continuing to develop leading products and push deeper into AI-native workloads.
But the explosion of private capital and the trend of late-stage startups staying private come with real risks. Take Rippling: it’s a standout business and likely a long-term AI winner. However, Rippling's last round reportedly valued the company at $16.8 billion on roughly $570 million in revenue, representing a ~29x revenue multiple on ~30% YoY growth. Although I suspect Rippling’s actual revenue and revenue growth are much higher, publicly available figures imply a roughly 0.96x growth-adjusted revenue multiple, which is higher than almost any large public software company. Given the valuation and Rippling’s ambitions to compound into a platform that can compete with names like ServiceNow and Salesforce, an acquisition is quite unlikely. Thus, for late-stage investors, the most realistic path to liquidity is an IPO. However, an IPO at Rippling’s current multiple would certainly face heavy pushback from public markets. So even though Rippling has massive growth potential and a strong, proprietary data stack for building and hosting AI agents, it still needs time to grow into its valuation. That time delays liquidity for late-stage investors, which compresses IRR.
For Rippling, staying private is a clear advantage while public software companies face sustained skepticism. Private software companies can keep investing aggressively in AI, either through R&D or M&A, without watching their equity currency weaken in real time. But for private-market software investors, last week should be a warning. Private markets may offer a place away from the spotlight of quarterly reports and earnings calls to execute an AI pivot. But eventually, most large private software companies, whether late-stage startups or legacy vendors that were taken private, still have to face the public markets, where investors are expecting a proven, monetizable AI transformation. And for late-stage investors in startups like Rippling, the clock is ticking if they want to sustain an attractive IRR.