How to Sell Your SaaS Company: Lessons from the Highest Deal Volume Year Ever

Feb 10

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Introduction

If you're running a software company and thinking about an eventual exit, the market has fundamentally changed since the COVID-era valuation peaks. Deal volume hit an all-time high in 2025, yet valuations split into two distinct groups: premium multiples for A+ assets and significantly lower multiples for everyone else.

Diamond Innabi has been in the trenches of software M&A for 15 years at Software Equity Group, helping founders position and sell their companies. She's seen the industry evolve from simple 30-slide presentations to deep AI-driven diligence processes. In this conversation, she walks through what actually drives premium valuations, how to evaluate different buyer types, and why the smartest thing you can do is operate like your business is already for sale—even if you're years away from an exit.

The discussion covers practical territory: why strategic buyers typically pay more than private equity, how to implement AI in ways that make your company more defensible rather than vulnerable, and what founders consistently underestimate about the M&A process. Whether you're planning to sell in 18 months or simply want to build a more valuable company, Diamond's insights reveal what buyers actually care about when they're writing checks.

Guest Snapshot

Name: Diamond Innabi

Title: Principal, Software Equity Group

Credentials:

15 years specializing in middle-market B2B SaaS and vertical software M&A
Led notable transactions including SightPlan's $135M acquisition by SmartRent
Co-author of "The State of SaaS M&A: Buyers' Perspectives" report
Representative on University of San Diego's Economic Advisory Board

Current Focus: Advising SaaS founders on exit timing, company positioning, and running competitive acquisition processes

Additional Areas of Expertise: SaaS valuations, vertical software, AI's impact on defensibility, women in investment banking

What Value Can Investment Banking Provide?

Most people hear "investment banking" and think of Wall Street, but Diamond's work sits in a specific subset: merger and acquisition advisory for software companies.

Software Equity Group helps founders think through three core questions:

When's the best time to go to market? Sometimes that answer is "not now—here's what you need to do first."
How do we position your story? The narrative has to resonate with what buyers care about today, not what worked five years ago.
Who's the right buyer? This could mean a complete exit or finding a partner to help scale to the next stage.

The firm runs competitive processes where multiple buyers evaluate the company simultaneously. This isn't just about driving up price—though that happens—it's about understanding which buyer actually values what you've built and will be the best long-term home for your business.

Diamond describes the relationship between founders and buyers in clear terms: "As well as you know your customers, we know these buyers like our customers." That knowledge—understanding how Buyer A negotiates versus Buyer B, which ones have room to move on price, which ones are straight shooters—creates leverage throughout the process.

One critical difference from other types of brokers: investment bankers in this space provide what Diamond calls "white glove" service. You can show up with a dataset and an understanding of your market, and they'll craft the entire narrative that positions your business in the best possible light.

The Three Types of Software Buyers

Not all acquisition offers are created equal. Diamond breaks down the buyer landscape into three distinct categories, each with different motivations and implications for founders.

Pure Financial Sponsors (Private Equity)

These buyers are looking for platform investments—your company becomes their first bet in a specific vertical or product category. They're optimizing for returns and planning their exit from day one, typically within three to seven years.

Private equity firms apply rigorous financial modeling and care deeply about metrics like Rule of 40 (growth rate plus profit margin). They're buying with a clear thesis about how to build value and eventually sell to someone else.

Strategic Buyers

Strategic buyers are existing companies—sometimes public, sometimes private—that see your business as filling a gap in their solution or expanding their market reach. They might need your technology, your customer base, or your team.

Here's the important distinction: strategic buyers typically pay the most. They're not constrained by IRR calculations the way private equity is. They're buying capability, and they can justify higher multiples because your business makes their existing business fundamentally better.

But there's a caveat. Some strategic buyers view you as competition they want to eliminate rather than a product they want to integrate. Those deals rarely end well for founders who care about their team and customers.

Private Equity-Backed Strategic (Roll-Ups)

This is the fastest-growing category. A private equity firm already owns a company in your space (the "platform investment"), and they're acquiring similar businesses to build scale and create a more valuable exit down the road.

These deals are more complex because they need to be accretive to the existing platform. The private equity firm is thinking about where they are in their hold cycle, how your business affects the overall valuation, and whether the synergies justify the acquisition price.

Add-ons typically don't command the same premium multiples as platform investments or strategic acquisitions, but they're often good homes for businesses looking to scale with more resources and infrastructure.

What most founders don't realize: When offers are within a couple million dollars of each other, the vast majority choose the buyer who'll be the best steward of their company over the one offering the absolute highest price. The decision isn't purely financial—it's about legacy, team, and customers.

Why 2025 Set a Deal Volume Record

Software M&A hit an all-time high in 2025 with nearly 5,000 deals—roughly 1,000 more than the previous record in 2022.

What's driving this? Two major factors:

Lower barriers to entry in software creation. AI and modern development tools make it easier to build and launch software products. That means more companies reaching a stage where they're acquisition targets.

Buyers are placing their bets. Despite (or perhaps because of) economic uncertainty, acquirers are actively deploying capital. They're just being extremely selective about where those dollars go.

The counterintuitive part: even with record deal volume, platform deals (where a private equity firm makes a new first investment in a vertical) dropped to less than 10% of transactions—the lowest level since 2021. Instead, buyers focused on add-on acquisitions and strategic deals.

This tells you something important about market sentiment. Buyers want to build on existing positions rather than take big new platform bets. They're seeking risk mitigation through established businesses rather than swinging for entirely new categories.

For founders, this creates a specific dynamic. If you're an A+ asset—great metrics, defensible position, growing market—you're likely to see aggressive competition. If you're in the middle of the pack, expect buyers to be more conservative on valuation while still willing to transact.

The AI Impact: A Barbell Market

AI has created what Diamond calls a "barbell market" in software valuations. Companies are clustering at two extremes:

On one end: A+ assets getting premium multiples and aggressive buyer interest.

On the other end: Everything else trading at significantly lower single-digit multiples.

The gap between these two groups has widened dramatically. Buyers are asking a new fundamental question about every software company: "Can somebody come in and vibe code something and take all of your business?"

If the answer is yes—or even maybe—that's a valuation problem.

What Makes an A+ Asset?

Diamond outlines the specific characteristics that put companies in the premium category:

Financial metrics:

Gross revenue retention above 90% (less than 10% of revenue churning)
Net retention above 100% (existing customers expanding their spending)
Growth above 30-40% (the market has shifted back to valuing growth after a few years focused on profitability)
Rule of 40 around 40%+, weighted toward growth
Scale of at least $10-15 million in revenue

Defensibility factors:

Mission-critical to customers (not a nice-to-have)
Durable market position (not easily displaced)
Data moat (you have proprietary data that makes your product more valuable over time)
AI implementation that enhances rather than exposes your business

That last point is where many founders are getting it wrong.

How to Build Defensibility in Your SaaS Business

The most surprising insight from Diamond: established SaaS companies actually have a competitive advantage over AI-native startups—but only if they're implementing AI correctly.

"Being a SaaS business first gives you a competitive advantage because you have the data that's needed for AI," Diamond explains. She uses a compelling analogy from the CEO of Filevine:

Imagine an AI tool that picks your outfit every day from your closet. Sounds great—you don't have to think about it. But then the AI says, "I'll pick your outfits, but you'll never have access to your closet or clothing again."

Nobody wants that. You want access to your data and workflows. That's where the SaaS platform comes in. The platform is the closet. AI is the tool that helps you use it better.

Two Ways to Implement AI Successfully

Diamond sees buyers favoring companies that implement AI in both dimensions:

1. Internal operations

Use AI to make your business more efficient:

Clear support tickets faster
Help sales teams identify ideal customers more quickly
Build product features more rapidly
Optimize revenue operations

This signals operational maturity and gives you a competitive edge. Your business runs faster and leaner than competitors who aren't leveraging AI internally. Eventually, this flows through to margin expansion.

2. Customer-facing product

Deliver better value to your existing customers through AI-enhanced workflows:

Don't just add a chatbot layer (buyers see through this immediately)
Integrate AI into the actual workflows of your solution
Focus on making your core value proposition faster and better
Use AI to "double and triple down on what you're doing best already"

The key principle: use AI to enhance and defend your existing business, not to chase entirely new capabilities that expose you to more competition.

A CRM will use AI differently than an ERP system, but both should be asking: "How does AI make what we already do better for our specific customers?"

What buyers are checking: During diligence, buyers are now looking at both sides of this equation. They want to see that you're using AI internally (operational maturity) and that you're implementing it in customer-facing ways that actually deliver measurable value.

Run Your Business Like It's Already For Sale

Diamond says this phrase so often to founders that she jokes about it: "Run your business like it's already for sale. I will say that until I'm blue in the face."

This doesn't mean you should constantly be preparing for an exit. It means you should have the operational excellence, metrics tracking, and strategic clarity that make your business inherently valuable.

The Basics That Still Trip People Up

It's 2025, and Diamond still sees companies that don't have a monthly recurring revenue (MRR) file. "How do you strategize around numbers you don't know?" she asks.

An MRR schedule shows exactly where your revenue comes from and how it changes month over month. Without it, you can't answer basic questions about:

Which customers are expanding
Which products drive the most revenue
What your retention really looks like
Where growth is actually coming from

If you don't have clean financial tracking, bring in a quality of earnings (QoE) provider. They'll go through your revenue and expense categories, make sure everything is bucketed correctly according to GAAP standards, and help you build the MRR tracking you need. This doesn't have to be expensive—you can start with a limited scope engagement.

Know Why You Win Deals

Diamond asks founders a simple question: "When you have a competitive sales process against competitors A and B, why did you win?"

Many can't answer it clearly. They just know they're winning business without understanding the actual reasons customers choose them.

Go through your last 10-50 wins (depending on whether you're enterprise or SMB) and ask customers directly: "Why did you choose us?"

If the answer is "better customer support" or "better pricing," that's a red flag. Those advantages aren't sustainable or defensible. A competitor can hire support staff or drop their prices tomorrow.

You want to hear answers tied to:

Specific functionality they can't get elsewhere
Workflows that are uniquely tailored to their industry
Data or insights your platform provides that competitors don't
Integration advantages with their existing systems

Understanding your true competitive advantage lets you invest in and protect the things that actually matter.

Build Your Right to Win

Before AI, defensibility meant answering: "Can a competitor easily steal your customers?"

Now it means: "Can someone build a competitive product with AI and take your market share?"

Building a sustainable right to win means:

Owning proprietary data that makes your product better over time
Being deeply embedded in customer workflows (high switching costs)
Serving a specific industry or use case better than horizontal alternatives
Continuously investing in what makes you uniquely valuable

As Diamond puts it: "Whatever you're doing, understand what you do well and double down on it. Your customers come to you for a reason."

The M&A Process Timeline

A typical M&A process runs four to six months from start to finish, but the preparation often begins 12-18 months before you go to market.

When Founders Come to Software Equity Group

Diamond describes a common scenario: A founder receives an unsolicited offer and wants help negotiating it or determining if it's fair.

The firm assesses everything—the product category, the market you serve, your financial profile, the competitive landscape. Sometimes they say, "This is a good offer. Let's do a market check or run a compressed process to see if we can get you something better."

Other times the answer is: "This isn't the right time. Here's what you need to do over the next 18 months to position yourself for a premium exit."

That's exactly what happened when Tad and Sriram sold their company. They reached out after getting an unsolicited offer. Alan from Software Equity Group told them: "We don't want to take you as a client right now. You're not ready. But let's spend 18 months getting you to a point where you want to sell and can command the right valuation."

The Four-to-Six-Month Process

Once you're ready and decide to go to market:

Preparation phase: Build the confidential information memorandum (CIM)—essentially a comprehensive PowerPoint that tells buyers everything important about your business, your market, and why you're positioned to win.

Market building: Identify the right buyers and begin outreach. This isn't just blasting your CIM to a database. It's strategically approaching buyers who have thesis alignment with what you've built.

Offers: Buyers submit letters of intent (LOIs) with proposed valuations and terms. This is where negotiation skills and buyer knowledge matter. Diamond tracks signals throughout the process—which buyers are leaning in, which are holding back, what leverage exists.

Diligence: After you accept an LOI, the deep work begins. The buyer verifies everything about your business. This is where many founders think the deal is done, but Diamond emphasizes: "We're constantly selling up until the money is wired into people's accounts."

Why Negotiation Never Stops

Signing an LOI doesn't end the M&A process. It's a non-binding agreement to move forward with diligence. During those weeks or months, buyers are discovering new information, validating assumptions, and sometimes finding reasons to renegotiate.

Software Equity Group's job is to track every signal from day one. If a buyer showed particular enthusiasm about your customer retention during initial conversations, Diamond makes note of it. If concerns come up during diligence, she can reference that earlier excitement to keep the deal on track.

"That's where we differ from a real estate agent who just wants the deal done," Diamond explains. "We know when to push for more and when we're getting signals that the buyer is tapped out. Push too hard and you lose the deal. Don't push enough and you leave money on the table."

What Happens After You Sign the LOI

The diligence period is where deals can unravel or terms can shift. Buyers are now using AI tools to accelerate their analysis, which means they're going deeper and faster than ever before.

How Buyers Are Using AI

Diamond has noticed buyers taking CIMs and other materials, feeding them into their own AI models, and asking: "What are the most important aspects of this business? What are the risks? What should we dig into?"

This creates both opportunities and challenges. On one hand, AI helps buyers get up to speed quickly. On the other hand, it means they're identifying potential issues faster and asking harder questions earlier in the process.

Software Equity Group has adapted by:

Ensuring all content is structured in ways that work well with AI analysis
Anticipating the questions AI might surface and addressing them proactively
Being prepared for buyers to dig much deeper than they would have five years ago

The Diligence Deep Dive

Buyers want to verify:

Financial performance (are the numbers you showed them accurate?)
Customer health (will these customers stay post-acquisition?)
Technology stack (is the product actually differentiated or easily replicated?)
Team capability (can this team execute the growth plan?)
Market position (is the competitive landscape as favorable as presented?)
Legal and compliance (are there hidden liabilities?)

For companies with complex technology or high customer concentration—two challenges Diamond specializes in—this phase requires careful management. Buyers need education about why the technology matters or why certain large customers create strategic value rather than risk.

When AI Becomes Part of Diligence

In 2025, buyers are explicitly testing AI displacement risk during diligence. They're asking:

How much could AI automate what your product does?
Are you vulnerable to a well-funded startup building a competitive product with AI?
What's your roadmap for integrating AI into your product?
Do you have the data needed to build AI features that create defensibility?

If you can't answer these questions convincingly, expect valuation to take a hit or the deal to fall apart.

Earnouts and Rollover Equity

Deal structure matters as much as headline valuation. Two common components—earnouts and rollover equity—shape your actual returns and post-exit experience.

Earnouts: Bridging the Valuation Gap

Earnouts were rare during the 2020-2021 boom. Buyers were paying full cash upfront without conditions. That changed as the market normalized.

An earnout is when part of the purchase price is contingent on hitting specific performance targets after the acquisition closes. Buyers use them to bridge gaps between what sellers expect and what buyers are willing to pay upfront.

The problems with earnouts:

In 2022-2023, Diamond saw earnout structures that were "just nerve-wracking for everybody." The targets were unattainable or tied to metrics the seller couldn't control post-acquisition.

Better earnout structures in 2025:

Earnouts are now more achievable. If your forecast shows 20% growth, the earnout is tied to hitting that 20% growth. If you deliver what you said you would deliver, you get paid.

Diamond's firm negotiates hard on earnout terms:

Revenue-based targets are acceptable (you control the forecast)
EBITDA-based targets are problematic (the buyer controls costs post-close)
Customer retention targets are problematic (the buyer's integration affects retention)

"Where we don't like earnouts is if it's hitting the bottom line or if it's customer retention-based," Diamond explains. "You don't have control of the business anymore. You can't cut costs or add costs. You can't control if customers want to stay after an acquisition."

In many cases, Software Equity Group successfully negotiates earnouts out of deals entirely or finds another buyer without those structures.

Rollover Equity: The Second Bite

Rollover equity is when you reinvest a portion of your proceeds into the acquiring company, typically in a private equity deal. You're getting a "second bite of the apple"—when the private equity firm eventually sells the larger combined company, you participate in that exit too.

Why founders like it:

Diamond's clients who've done rollover deals tend to do better on the second exit than the first. Private equity firms are good at building value. If they bought at a 6x multiple and sell at a 10x multiple, your rolled equity benefits from that appreciation.

Common rollover amounts range from 10% to 49% of the deal value, depending on your goals and the buyer's requirements.

What to negotiate:

The terms of rollover matter tremendously. You want to roll at the same class of equity as the private equity firm—not junior to them. If something goes wrong, you shouldn't be the last one to get paid out (or get nothing while they get their money).

Diamond's team focuses on these protections during legal negotiation to make sure founders aren't taking unnecessary risk with their rollover capital.

Seller Financing

Seller financing—where you essentially loan money to the buyer as part of the deal—happens occasionally but not frequently. It's almost always used to bridge a valuation gap when the buyer sees more risk than you do or can't access enough capital to pay your asking price upfront.

Most founders prefer to avoid this structure. You've built the business and taken the risk for years. Getting paid in full at close is the cleanest outcome.

Life After the Exit

What happens after the money hits your account depends on which path you choose: complete exit or staying involved.

The Clean Break

If you sell entirely and exit the business, Diamond's advice is straightforward: "Go enjoy your life, find some people to help you manage your money, and maybe go on to your next venture."

Many founders in this category end up starting something new. The entrepreneurial drive doesn't disappear just because you had a successful exit.

Staying Involved Post-Acquisition

This is more common and more complex. You've sold majority ownership (or all of it), but you're staying on—either as CEO, in a strategic role, or as a product leader.

The mindset shift:

Many founders haven't had a boss in years, or ever. Now they're reporting to a private equity partner or a corporate executive. This changes everything about how you operate.

Diamond emphasizes the importance of being clear upfront about what you want:

Do you want to remain CEO and run the business day-to-day?
Or do you want to shift into a strategic advisor role, focusing on product and market strategy while someone else handles operations?

Many founders choose the latter. "They hate the operational side, which is part of the reason why they want to sell their businesses," Diamond notes. "They want to focus on product and strategy again."

Define your role clearly:

Before you sell, be explicit with your investment banker and the buyer about what your post-exit role looks like:

What are your responsibilities?
Who do you report to?
What decisions do you control?
What's the expected time commitment?
How long is your transition period?

Vague handshake agreements about "staying involved" lead to frustration and failed relationships.

The upside:

When the partnership works well, founders stay anywhere from 18 months to five years post-acquisition. They get to build with more resources, take the operational burden off their plate, and focus on what they actually enjoy about the business.

What Happens to Your Team

For founders who care about their people (which is most of them), this matters as much as personal outcomes.

"Nine times out of ten, when you're selling a business or getting an investment, it's great for the employees," Diamond explains. They get opportunities to advance their careers, join larger organizations, learn new skills, or take on leadership roles they wouldn't have had in a smaller company.

Tad and Sriram's acquisition by Agilent is a perfect example. More than half their team is still with the acquirer a decade later, and several people became department heads within the larger organization.

Not every employee wants that. Some prefer the smaller company environment. But for those looking to grow, a good acquisition opens doors that didn't exist before.

Communication is crucial:

How you talk to your team about the acquisition shapes how they experience it. Frame it around the opportunities they'll have, the resources available, and why this buyer is the right fit—not just the financial details of the deal.

Memorable Quotes

On defensibility in the AI era:
"Can somebody come in and vibe code something and take all of your business? That's not good."
On SaaS companies' AI advantage:
"Being a SaaS business first gives you a competitive advantage because you have the data that's needed for AI. The SaaS platform is the closet—AI helps you use it better, but you'll always have access to it."
On running your business:
"Run your business like it's already for sale. I will say that until I'm blue in the face."
On the importance of tracking metrics:
"How do you strategize around numbers you don't know?"
On implementing AI successfully:
"The companies that will be successful are the ones using AI to double and triple down on what they're doing best already."
On when negotiation ends:
"We're constantly selling up until the money is wired into people's accounts."
On why strategic buyers pay more:
"A strategic is saying, 'I want to acquire this business because it's going to make my company fundamentally better.' They're not optimizing for IRR models like private equity."
On founder priorities in exits:
"Most of the clients we work with are founder-led businesses where they built this company for 5, 10, 20, 30 years. They want to make sure the company they've built is going to the right partner and their customers and employees are taken care of."
On investment banker value:
"As well as you and executive teams know your customers, we know these buyers like our customers."

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Ryan Morrison