Rewriting Your Pitch: SaaS Isn’t Dead, But The Playbook For Founders Is Changing
By Ivan Nikkhoo
For decades, the SaaS playbook was clear: predictable revenue streams, very high gross margins, efficient customer acquisition and strong net revenue retention made a startup very attractive to investors. These metrics built unicorns and defined how investors valued SaaS investments.
But today, with the launch of LLMs, and in the shadow of the “SaaSpocalypse,” 30 years of relative SaaS stability has been shattered and the playbook is being rewritten with disappearing ink.
If you’re a SaaS founder — especially one raising capital — this may lead to uncertainty and confusion. You may lose sleep because the whole market trajectory is uncertain. Investors themselves are trying to anticipate how the SaaS business model will change and, ultimately, what your company should be. To add further confusion, the model many VCs are championing (SaaS and services, anyone?) doesn’t look anything like traditional SaaS. So, what should a founder do?
Ignore the SaaS du jour
In a recent blog post, Sequoia Capital partner Julien Bek argued that the next trillion-dollar company will be a software business disguised as a services firm, one that sells both tools and outcomes.
His logic is straightforward: For every dollar spent on software, six are spent on services. Meanwhile, LLMs are commoditizing many AI-native SaaS products before they even have a chance to scale. In this world, Bek argues, judgment — not software — is the scarce asset and customers will eventually pay for outcomes, not seats.
For founders, advice like this can be seductive to take. If software margins are compressing and AI is eroding moats, why not follow the trend, add services and open new revenue streams?
Founders need to be careful about taking this fashionable advice because it is greatly driven by investor anxiety and not as much by market reality. What VCs are really responding to are two separate concerns: how to reduce the risk that a portfolio company is disrupted by foundation models, and how to adapt to a new SaaS economy where software alone may no longer command the margins, defensibility or growth premiums it once did.
Founders should instead be prepared to answer this practical question: which parts of their business still matter, which parts have changed, and how do they need to adjust in that context. If the offering is not core to the operations of the enterprise, a pivot will likely be necessary.
The market reset is real, and yes it affects your pitch
The growth-at-all-costs mindset is gone. In its place, investors are laser-focused on capital and sales efficiency, gross and net retention, as well as Rule of 40, gross retention, CAC payback and burn multiple.
What this means for your pitch: A strong SaaS founder today must be able to demonstrate a sharp wedge, a clear buyer, strong usage, measurable ROI and a product roadmap that expands from point solution into platform.
The bar has moved from “Can this company grow?” to “Can this company grow efficiently and organically, retain customers through budget scrutiny, and compound value as it scales?”
AI startups can grow at unprecedented rates, but early hypergrowth can be misleading when switching costs are low and retention is unproven. Investors are excited by AI growth, but increasingly skeptical of AI novelty.
A demo is not enough. You need to prove AI creates durable workflow ownership, not temporary experimentation. Remember, if it takes less than a year to create a company using the current tools, without a sufficient moat, it will take even less time to create an even better company to compete with this one in 12 months.
Focus must be on creating a system of intelligence or a vertical operating system for an enterprise. Understanding workflows is critical. Features and functionalities are no longer sufficient.
Your pricing model is going to change
Seat-based pricing is no longer always the right answer. If your AI performs work independently, customers don’t need more seats to get more value. This is pushing the market toward usage-, consumption- and outcome-based models. Battery Ventures’ The State Of AI Report notes that long-term pricing is shifting toward value-based and outcome pricing, and that continued cost-of-intelligence improvements could eventually help margins expand.
In the old SaaS model, value was tied to access: seats, users, departments. In the AI era, value is tied to outcomes. Software isn’t just helping employees do tasks anymore. It’s beginning to execute them directly: writing code, reviewing contracts, resolving support tickets, analyzing financial data, automating back-office workflows.
Have a big moat
Promising AI categories are attracting 2x to 3x more competitors than in prior years, while large SaaS incumbents are aggressively launching AI products, acquiring startups and hiring AI talent. Investors will ask you directly: what’s your moat? Is this a real defensible position, or a feature that Salesforce 1, ServiceNow or Microsoft can ship in a quarter?
AI expands the addressable market for software significantly. Traditional SaaS captured software budgets. AI-enabled SaaS can capture services spend, labor spend and outsourced process spend. Battery frames this as a major expansion from cloud software into services automation and human labor displacement — a much larger opportunity than prior SaaS waves.
Rules for the road
The market is open for exceptional SaaS companies. But the bar is higher, and investors have seen enough AI pitches to be skeptical of the theme. What they want to hear from you: A specific customer pain point with evidence of urgent demand; proof of retention, not just initial adoption; efficiency metrics that hold up under scrutiny; and a clear, concrete explanation of how AI improves your product, your business model and your customer’s ROI.
The founders who get funded in this environment will be domain experts who understand their customer’s workflow deeply, where AI can safely replace, augment or accelerate human work, and disciplined operators who understand the economic tradeoffs: when to use frontier models, when to use smaller specialized models, when to fine-tune, and when to preserve human review.
Ivan Nikkhoo is managing partner at Navigate Ventures. He has more than 41 years of C-level global experience in the tech sector as a seasoned investor, entrepreneur, board member and educator focused on helping teams prepare for rapid growth, scaling and liquidation events.
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Illustration: Dom Guzman
