137 Ventures' Christian Garrett: $1–10B horizontal SaaS companies are orphaned, and a new semi-liquid asset class is emerging

Summary

Christian Garrett, managing partner at 137 Ventures, argues that the $1–10 billion horizontal SaaS company is effectively uninvestable right now — too small to move the needle for strategic acquirers, too risky for private equity spooked by what happened to Pluralsight when AI disrupted its core product.

The public market numbers illustrate the problem. Asana trades at 4x NTM revenue, forecast to grow 8% this year with 1% free cash flow margins. Bill.com, once the highest-multiple name in software and fintech, is now at roughly 2.5x topline. These are real businesses, Garrett says, but they are not long-term compounders — they are point solutions in commoditizing categories with no clear path to expanding margins.

Why consolidation hasn't happened

The companies that should be acquisition targets are mostly cash-flow positive, which means founders aren't forced sellers. Buyers, meanwhile, look at elevated price expectations and ask why they should absorb the dilution when AI might let them build the same functionality faster and cheaper. The buy-versus-build calculus has shifted, and lower interest rates — whenever they arrive — are probably the most likely catalyst to change it. Until then, Garrett expects the category to stay stuck.

For the broader unicorn overhang — roughly 1,000 companies still carrying 2021 marks — he says the majority face an uncertain outcome. Some have grown back into their valuations over 12 to 48 months. Most haven't, and at some point founders will have to choose between remarking the business or selling at a price that doesn't clear the preference stack.

The winners are bundles, not point solutions

Garrett's framework centers on what he calls "powers" — switching costs, network effects, and the ability to compound defensibility as the business grows. Multi-product is almost always the mechanism. Figma expanding across front-end development, Ramp and Mercury building out in fintech, and Rippling moving quickly to 50%-plus feature parity before launching new products within its bundle are the models he finds credible. Single-product horizontal companies, by contrast, are structurally exposed: the marginal competitor can reach feature parity, markets saturate faster than investors projected, and pricing pressure follows.

For vertical software, the playbook is similar but easier to execute — move into financial products, add modules, deepen within the vertical. Toast is the canonical example he references. The key question in either case is whether the company has a genuine right to win in its core before expanding.

A new semi-liquid asset class

The more structurally novel argument Garrett makes concerns the top 10 to 20 private technology companies — SpaceX, Stripe, Databricks, Anthropic and their peers. He describes these as a new semi-liquid asset class that venture has never encountered before. They are growing 50–100% annually, generating significant profit, and would qualify as large-cap public companies — potentially Mag 7 constituents — if they had listed. Palantir, the fastest-growing publicly traded software business, grows at 30%; these companies are growing at roughly double that rate, and the only way to access that growth is through private markets.

What makes this structurally different is liquidity. These companies run regular tender processes, mark every six to twelve months, and have created a functioning secondary market for founders, employees, investors, and LPs alike. Garrett says holding one of these positions now resembles holding a public stock more than a traditional illiquid venture stake — and LPs in funds with meaningful exposure are actually asking to hold rather than distribute.

Early-stage M&A and the valuation trap

The $100–300 million tuck-in acquisition that used to work cleanly has largely disappeared. Garrett points to two causes. Regulatory pressure under the prior FTC posture made big tech — historically the main buyer — pull back from deals in that range. And founders who kept taking successive funding rounds at rising valuations priced themselves out of the acquisition market: a company that raised at a $50 million post-money Series A could be acquired for $150 million and make everyone whole; a company that raised $200 million cannot. For the tuck-in market to recover, Garrett argues, founders would have to start saying no to higher valuations earlier — and there is little sign of that happening.

On capital wars, he acknowledges the inefficiency but stops short of condemning the dynamic. Competing companies burning parallel R&D and sales budgets on the same opportunity is wasteful, but it also reflects a level of entrepreneurial competition that most technology ecosystems outside the US simply don't have. The harder question — when founders are willing to merge rather than fight — remains largely unanswered. Founder mergers happen occasionally in cybersecurity and a handful of other categories, but they are still rare enough to be notable when they occur.