Jake Cantu
Partner & Managing Director, Global Leader, Technology, Media, and Telecommunications
Chicago
The structural changes reshaping enterprise software are now showing up in how companies are valued—and whether they survive. Traditional valuation frameworks built on ARR multiples are no longer relevant, as investors recognize that recurring revenue matters less than demonstrable business impact in an AI-driven world.
Meanwhile, mid-market companies face a once-in-a-generation squeeze: growth is slowing, venture capital is flowing to AI-native startups, and tech giants are pouring hundreds of billions into infrastructure that raises the competitive bar. The window for independent survival is closing. Companies should make bold moves—building AI capabilities, acquiring expertise, or positioning for exit. The industry landscape is being redrawn. Those that act decisively will shape it; those that hesitate will be shaped by it.
The transformative potential of AI is scrambling traditional investor valuation processes. Throughout the SaaS era, the dominant method was straightforward: multiples of ARR, adjusted for growth and profitability. That paradigm is buckling. When outcome-based pricing replaces per-seat subscriptions, revenue becomes inherently variable—ARR becomes meaningless if revenue fluctuates quarterly based on consumption rather than contract values. The shift reflects a simple recognition: in an AI-driven world, recurring revenue matters less than demonstrable business impact.
Investors are moving toward hybrid models blending ARR multiples, AI leverage ratios, and outcome-based performance benchmarks. Companies should evolve pricing, strengthen data assets, and tie adoption metrics directly to customer results. The companies that master this transition will command the valuation premiums that define the next era.
The enterprise software industry has reached a once-in-a-generation inflection point. Mid-market companies are being squeezed from three sides: growth is slowing, with only 22% expected to achieve 15%+ growth this year (down from 56% in 2023); venture capital is flowing to AI startups at unprecedented levels; and tech giants are pouring hundreds of billions into AI infrastructure, raising the competitive bar for speed and scale.
Many legacy mid-market companies lack the resources to withstand these pressures. They are too large to pivot easily, yet they are struggling against AI-native startups and deep-pocketed hyperscalers. The window for independent survival is closing. Leaders should make bold moves: build AI capabilities in-house, acquire specialized expertise, or position for a successful exit. Standing still is not an option.
Explore more from the 2026 Enterprise software technology predictions report in our other chapters
2026 Enterprise software technology predictions report
In this 2026 Enterprise software predictions report, we examine seven critical dynamics reshaping the enterprise software landscape and explain the specific transformations companies should execute to respond effectively.
These predictions reflect the inflection points we clearly observe across the industry, as AI forces fundamental changes across software development, interfaces, trust architectures, go-to-market operations, pricing models, valuation frameworks, and business structure itself.
We believe that companies mastering these transitions will define the next era of enterprise software leadership, and we predict that those unable to adapt will be sidelined as the industry landscape redraws itself.
