Liquidity-Blocked SaaS Companies: The Opportunity for Founders (and Investors)
For many SaaS founders, the dream was clear: scale fast, raise venture funding, and eventually exit through acquisition or IPO. But what happens when a company hits a ceiling at $10 million in revenue, growth slows, and investors need liquidity—but no easy exit is in sight?
Enter the Liquidity-Blocked SaaS Company.
What Is a Liquidity-Blocked SaaS Company?
Liquidity-blocked SaaS companies share a few key characteristics:
Revenue: Less than $10M
Growth: Under 10% per year
Profitability: At least breakeven
Importantly, these aren’t failing businesses. They’ve achieved product-market fit, built solid recurring revenue streams, and often serve a niche audience with high retention. The problem? Their original investors bet on hypergrowth and a big exit—neither of which is coming.
Why Are These Companies Blocked From an Exit?
Several factors can create a liquidity trap:
Market Expectations Didn’t Materialize
The total addressable market (TAM) was smaller than anticipated.
Go-to-market challenges made scaling difficult.
Venture-Backed Valuation Overhang
Many of these companies raised money in the frothy markets of 2020–2021 at sky-high valuations.
Investors need liquidity, but the company will never sell for anything close to those old numbers.
The cap table is misaligned, making new equity investment unattractive.
Too Much or Too Little Capital
Some are overfunded—they raised too much money, making new capital difficult to justify.
Others are undercapitalized, struggling to break out due to a lack of investment in sales and marketing.
In previous cycles, these companies would simply shut down. But SaaS is different. Even when TAM is smaller than expected, customers often stay locked in, and many SaaS companies have become profitable since 2022—giving them more options than before.
How to Unlock Liquidity and Move Forward
If hypergrowth isn’t an option, how do founders and investors find a solution? There are three main paths—plus one more speculative approach worth exploring.
1. Sell the Business
The most straightforward path is to run an advisor-led sale process and exit.
✅ Pros: Provides liquidity for all shareholders.
❌ Cons: Investors may take a loss, and founders might prefer to continue running the business.
2. Recapitalize via a Founder Buyout
If investors want liquidity but the founders want to keep running the company, a founder-led buyout can be an elegant solution.
Founders can raise debt or structured financing to buy out venture investors—often at a steep discount.
This transforms the business into a profitable, founder-owned company with flexibility to operate on their own terms.
✅ Pros: Founders regain control and can build for long-term value.
❌ Cons: Requires financing, and negotiations with investors can be tricky.
3. Transform It into a Platform for M&A
Rather than relying on organic growth, the company pivots into a buy-and-build strategy:
Raise growth capital for acquisitions.
Merge with other liquidity-blocked SaaS companies to create a larger platform.
Attract private equity firms looking for scale opportunities.
✅ Pros: Creates a larger, more valuable business with a clear exit path.
❌ Cons: M&A is complex and requires capital.
4. Explore a Direct Listing (OTC Markets)
For companies with a mix of investors—some who want liquidity, some who want to stay—a direct listing on the OTCQB or OTCQX market can provide an alternative.
This approach allows early investors to sell their shares while others remain.
A structured investor relations program can help create liquidity.
✅ Pros: Offers an exit for some investors while maintaining long-term ownership options.
❌ Cons: Requires compliance, investor education, and a willingness to manage a public listing.
What’s Next?
Liquidity-blocked SaaS companies aren’t failures—they’re opportunities. The key is aligning the company’s structure with its reality: slow but profitable growth, strong retention, and a misaligned cap table that needs fixing.
For founders, unlocking liquidity means the chance to own nearly 100% of a profitable company—with flexibility to operate, innovate, and potentially sell in a few years when the market conditions improve.
In upcoming posts, we’ll break down each of these strategies in detail—including real-world case studies and actionable steps to execute a founder-led recap.