As fears of the SaaSpocalypse mount, Carter McClelland and Gelila Bekele of Union Square Advisors LLC recently discussed software market turmoil, how to assess AI risk and niches where founder-owned outfits are making inroads on Behind the Buyouts.

For starters, McClelland explained that software’s turmoil has origins that predate the anxiety about artificial intelligence’s threat to the sector.

“Its roots really go all the way back to 2020 to 2021, when the economy was being stimulated during Covid, interest rates fell essentially to zero and money was free,” McClelland said. “A lot of it wound up in venture capital firms and PE firms, and a lot of that money wound up in technology, and in many cases in software companies.”

Five years later, sponsors are looking to exit investments at multiples well above the current market.

Bekele outlined Union Square’s AI methodology for developing strategies for PE software portfolios, which drew on more than 2,000 data sources to evaluate product defensibility, competitive threats and potential exits.

Meanwhile, new founder-owned businesses that have yet to raise capital are emerging and thriving with AI tailwinds.

Take companies that that sell apps on business-to-business software-as-a-service marketplaces akin to the App Store of Apple Inc. (AAPL). More than more than 19,000 business, many owned by founders, develop apps for Salesforce Inc. (CRM), Atlassian Corp. (TEAM), WordPress, Autodesk Inc. (ADSK) and others, Bekele said.

“Some of them can grow up to $20 million in revenue with no outside funding,” she said. “Some of these founders are building vertically focused, useful products for the customers of these large cloud ecosystems.”

Listen to the podcast with Carter McClelland and Gelila Bekele below:

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