Founders, your software company is not going to IPO
Sud Bhatija
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Founders, your software company is not going to IPO<br>853 US companies are valued at $1B+. According to SVB, fewer than 5% meet the revenue + efficiency bar required to go public
Sud Bhatija<br>Feb 25, 2026
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The utility of the IPO as a financial instrument is changing
The IPO was a product that offered a solution to two problems for businesses: it allowed capital intensive businesses to get access to the broadest possible investor base, and it allowed liquidity for investors, employees and founders. Private markets have eliminated the first. Companies are raising more private capital than ever. But the liquidity benefit of IPOs is getting harder to access every year.<br>Thanks for reading! Subscribe for free to receive new posts and support my work.
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The median size of software company going public has been consistently rising over the last decade. SVB says<br>At the pace at which the minimum threshold is rising, by 2030, a software company will likely need to have at least $500M-$700M+ in ARR to go public.
That is a structural change to the shape of the IPO window, rather than the window being cyclically “shut”
The risk adjusted cost of capital of private markets has been falling as tech investing becomes mainstream - and private wealth grows. In 2005, the entire U.S. venture capital industry managed $177 billion. By 2022, that number crossed $1 trillion. In the same period, the broader private capital market grew from $4 trillion to $13 trillion. US VC deal value has also grown dramatically over the last 20 years - deal value hit $339B in 2025.<br>Sovereign wealth funds, family offices, and hedge funds are now filling gaps that traditional VCs used to own. Anecdotally, almost every founder I know is also an angel investor — and most above a certain tax bracket are LPs in the very funds that backed them. The capital supply in private markets has expanded & diversified permanently.
At the same time, public markets have become increasingly discerning in how they value private companies. Public markets are bifurcating — they’re paying premium multiples for high-growth companies and punishing everyone else more severely than at any point in the last decade. Public market investors now have more high-growth options (especially AI companies), so the opportunity cost of owning a lower-growth software company has gone up.<br>This means that even if your company can go public, its private valuation might overshoot the appetite of public markets. Getting a VC to value you at $1B is hard. But it doesn’t get easier after that.<br>Every valuation designated by investor assumes that the company will exceed that in the future and that someone (either public markets or other private investors) will assign you a higher value that creates enough returns.<br>The lack of public market exits stresses the entire system before it - because new investors ultimately need exits. So at some point it won’t make sense for the next private investor to fund your growth.
This gap creates a problem for you - it’s about your people.<br>The multiple your current investors value you at and what your future investors value you at is - very different. That is now your problem.<br>Your investor has a portfolio; they need one of twenty bets to pay off. You have one company. When the gap materializes, the investor marks it down and moves on. You live in it for years. I speak to this from personal experience — not as an observer, but as someone who lived inside this gap for two years.<br>We at Spot AI raised a Series B in 2022. We then spent 2023-2025 years fundamentally altering our business. We took a painful valuation cut, had to restructure for efficiency, while innovating on new products - all at the same time. We came out the other side - in 2025, we added more new ARR than 2023 and 2024 combined - while cutting our net burn by 70%+. But that was a hard journey.<br>The hardest part wasn’t the restructuring itself — it was doing it while still trying to grow. It was watching morale take a hit and knowing you couldn’t fix it with a speech. It was losing good people who left for companies where they could see more upside. It was managing employee morale through all the changes that needed to be made to grow into our valuation. And it was about balancing all that to maintain our edge in innovation and our growth rate.<br>That’s the real cost of the valuation gap — it’s not a spreadsheet problem, it’s a people problem.
This adds a new dimension to optimize for when building a company<br>The current era of growth-stage private companies can broadly be bucketed in the following way:
If you have conviction on the path to public - that’s great. More power to you. But in the absence of a that - focus on durability will lead to better outcomes rather than just growth.
So, how do you build a durable business? Focus on cash generation and ARR per employee.<br>Suggesting that a company...