When Too Much Capital Becomes a Problem: How SaaS Founders Can Reclaim Their Company

The Liquidity Trap Facing SaaS Companies

Many SaaS companies that raised venture capital in the boom years of 2020-2021 now find themselves in an awkward position. They have reached $5M-$10M in revenue, are profitable, and have happy customers, but their growth has slowed, and their total addressable market (TAM) is smaller than expected. Meanwhile, their investors—who backed them at high pre-money valuations, often 20x revenue or more—are looking for liquidity.

This situation creates what we call a Liquidity-Blocked SaaS Company: a company that is viable and profitable but misaligned with its current investors, making a traditional high-multiple exit unlikely.

The Over-Capitalization Problem

One of the biggest challenges for these companies is over-capitalization—raising too much money at too high a valuation. Our analysis shows that companies that took on too much venture capital can end up in a dead-end situation where neither the investors nor the founders benefit in a liquidity event.

Here’s what happens:

• Smaller investment rounds (~$5M-$10M) allow both founders and investors to profit in an exit.

• Larger Series A rounds ($20M-$40M) lead to poor outcomes for both investors and founders—investors get weak returns, and founders may end up with nothing.

• Many of these companies were valued at 20x revenue or more in 2021, which is no longer realistic in today’s market where 3x-6x revenue multiples are the norm.

Example: Scenario Analysis of a SaaS Company’s Liquidity Options

We modeled different funding scenarios for a $8M revenue SaaS company with 5% revenue growth, 20% EBITDA margins and a 3x revenue exit multiple:

Hypothetical P&L and exit profile for a slow growing and profitable SaaS businesses.

Scenario analysis showing Investor MOIC and Founder Proceeds depending on total institutional investment value.

Key Takeaways

• If Series A was under $10M, the company is in a good position for a reasonable liquidity event.

• If Series A was $20M+, founders may need to negotiate a buyout at a discount to regain ownership.

How Founders and Investors Can Get Liquid

When founders and investors are misaligned, there are three main ways to get liquid:

1. Sell the Company (Best if Founders Want to Leave)

If the founders no longer want to operate the business, they can run an advisor-led sales process to find a buyer. However, challenges arise if:

• Investors expect a much higher valuation than what the market will pay.

• Founders would walk away with little to nothing due to the preferred stock structure.

• The business is too small to attract strategic acquirers, making a sale difficult.

💡 Best when: Investors are willing to sell at a discount, and founders are ready to exit.

2. Founder Buyout / Recapitalization (Best if Founders Want to Stay)

If the company is profitable and stable, but investors want out, a founder-led buyout can be a great solution. In this scenario:

• Founders raise debt or new equity to buy out venture investors—often at a significant discount.

• The company shifts to a cash-flow-focused, founder-controlled business.

• Investors get some liquidity, rather than waiting indefinitely for an unlikely high-multiple exit.

💡 Best when: Founders believe in the business long-term and are willing to take on financing to reclaim control.

3. Hold and Distribute Dividends (Best if Investors Are Patient)

If a sale isn’t attractive and a buyout isn’t feasible, another option is to shift the business model to focus on profitability and distributions:

• Instead of aiming for an exit, the company pays dividends to investors and founders.

• This approach requires patient investors who are willing to wait for cash flow instead of an immediate liquidity event.

• The company continues to operate but under a new financial strategy.

💡 Best when: The business is highly profitable, and investors are willing to wait for returns.

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 market conditions improve.

If you’re a founder or investor navigating this challenge, it’s time to consider your best path to liquidity. Are you selling, buying out investors, or shifting to a profitability-driven strategy? Let’s talk about how to make it happen.