How the SaaS fundraising scene is shifting in the age of AI

For much of the past two decades, software startups have been the backbone of the venture capital economy. Every year, investors funnel more capital into the Software-as-a-Service (SaaS) sector than any other industry. In Q3 2025, for instance, about 33% of all venture funding logged on Carta went to startups in the SaaS industry. The sector with the next-highest share was hardware, at 16.5%. 

In the past few years, however, the SaaS market has undergone a wholesale transformation, driven by the rapidly growing dominance of AI. These days, nearly every company that could be described as a SaaS startup is also an AI startup. For many of the VCs searching the market for the next standout company, this shift has huge implications. 

“Investors have known how to invest a certain way,” says Blair Garrou, managing partner at Mercury Fund, an early-stage firm that invests in software and other tech companies, with a focus on startups based outside Silicon Valley. “They have the SaaS playbook. It’s been exactly the same for 15 years. But now, with AI, the rules have changed. The industry has had to adapt—not only with what works, but with what is going to become standardized.” 

Among these key changes, Garrou says, are shifts in how software startups are building their teams and trying to establish early traction as they go to market. For instance, among companies providing vertical AI tools, he’s seen a growing emphasis on using forward-deployed engineers with distinct industry expertise to work directly with pilot customers, with a goal of improving product stickiness and customer retention. 

With so many different AI products on offer, including those from well-established tech behemoths, simply finding early customers is no longer enough. VCs want to see proof that a company can build a relationship with those customers and shape its AI tooling to meet their specific needs. 

In this sense, the technological revolution inspired by the rise of AI looks a bit like a blast from the past.  

“Enterprise software in the 2000s would have a really long implementation time, and you had a solution engineer who would actually do the implementation, with time-to-value taking months,” Garrou says. “Fast forward 25 years, and we’ve kind of come back to basics. Except now, the solution engineers are being termed as ‘forward-deployed engineers,’ and AI is enabling time-to-value in hours.”

The ground beneath the feet of software founders and investors has shifted. And the seismic activity isn’t over yet. As the AI revolution continues to unfold, the fundraising landscape for SaaS startups will continue to change. And the pace of those changes has shown no signs of slowing. 

“Every two or three months, we’re seeing something different in how companies that are AI-native or AI-fast are going to market, because all those SaaS rules of go-to-market have changed. It’s wild to watch,” Garrou says. “I’ve been in venture for more than 20 years, and the market is moving faster than I’ve ever seen.” 

Q3 highlights

• Software spending is on the rise: Investors deployed about $20 billion in software funding rounds on Carta across Q2 and Q3 combined—the fastest rate of spending since the first half of 2022, at the tail end of the recent VC bull market. Overall cash raised in the SaaS market this year is on pace to approach 2022’s annual total of $40.5 billion. 

• Early-stage valuations reach new highs: The median primary valuation for seed rounds raised by SaaS startups on Carta rose to $19.8 million in Q3, up from $14.7 million a year prior. At Series A, meanwhile, the median primary valuation reached $60 million, versus $44.5 million in Q3 2024. Seed and Series A valuations are both significantly higher in the SaaS industry than across the VC market as a whole. 

• The pre-seed market is surging in the 2020s: Pre-seed SaaS startups on Carta brought in $371 million in new funding in Q3, up 135% compared to the same period in 2021. While most areas of the SaaS fundraising market still lag behind totals from the record-breaking bull run of the early 2020s, the pre-seed market is an exception.

>> See the breakdown for all industries in the full State of Private Markets report for Q3 2025.

Key trends

SaaS startups on Carta combined to raise $28.2 billion during the first three quarters of 2025, a 25% uptick over the same period in 2024. If that pace continues during Q4, annual fundraising in the software sector would approach $40 billion. That’s still a long way off the high-flying dealmaking numbers from 2021, but it would represent a significant increase from each of the past two years.

While the amount of cash invested in the SaaS space continues to trend up, the number of deals taking place continues to hold steady. There were 1,315 new funding events in the first three quarters of 2025, equating to an annual pace of 1,753 total rounds—almost exactly in line with deal totals from 2023 and 2024. 

The upshot: With more cash spread across a similar number of rounds, the average size of new SaaS rounds is rising in 2025.

On a quarterly basis, cash raised by startups in the SaaS space has been steadily trending up for the past two years. SaaS companies on Carta combined to bring in $9.3 billion in new capital during Q3 2025, up 13% from the same period a year ago and 82% compared to two years ago. 

Quarterly deal counts, on the other hand, are trending slightly down. With 420 new rounds, deal count in Q2 fell by less than 1% year over year and by 6% compared to two years ago. On the whole, however, the number of rounds being raised by SaaS startups each quarter has held relatively steady since the start of 2023. 

In the pre-seed market, both the number of new SaaS rounds taking place and the total cash raised by SaaS startups have risen significantly since 2021. This stands in sharp contrast to the market for SaaS funding at later stages, where activity still lags far behind the record-setting levels seen in 2021.

In Q3 2025, pre-seed companies in the SaaS sector combined to raise $371 million in new funding on Carta across 2,111 transactions. Compared to four years ago, in Q3 2021, that represents a 135% increase in cash raised and a 54% uptick in deal count. 

As valuations have soared for the most successful SaaS companies at seed and Series A, many investors are moving their attention even earlier in the startup cycle, aiming to locate the next big thing as quickly as they can. 

“Every investor across the spectrum is trying to get in earlier in vertical AI, because they don’t want to get caught in the high-price activity that’s happening in the foundational models,” Garrou says. 

The $9.3 billion in total capital that SaaS startups on Carta raised during Q3 2024 was distributed fairly evenly across different phases of fundraising life. Seed-stage startups had the lowest fundraising total, at $1.2 billion, while companies at Series D and beyond raised the most new capital, at $2.3 billion. The seed stage experienced a significant dropoff in Q3 after funding had spiked in Q2. 

This relative equality in terms of dollars raised belies some sharp differences between fundraising stages in the number of new rounds taking place. At the seed stage, that $1.2 billion in new capital in Q2 was distributed across 207 different transactions. At Series D+, the $2.3 billion in new funding that SaaS companies combined to bring in was divided across just 17 rounds.  

The $1.2 billion in new seed-stage funding that SaaS startups on Carta raised in Q3 2025 marked a big step down from Q2, when software companies collected $2.7 billion in new funding. In any other context, though, it was a strong quarter: Setting aside the outlier total from Q2, SaaS startups raised more new seed capital in Q3 than any other quarter of the past four years, including a 33% year-over-year increase.

On the whole, the number of early-stage SaaS rounds taking place has remained quite stable over the past year, despite some minor fluctuations. At seed, Q3 round count is up 2% year over year. At Series A, the number of new checks dipped by 5%. 

Series B startups on Carta combined to raise $1.6 billion in Q3 2025, a 16% year over year decline. At Series C, on the other hand, fundraising keeps trending up: Startups at that stage corralled $2.2 billion in new capital in Q3, marking a 16% year over year increase and the highest quarterly Series C funding total in the past three years. 

At both Series B and Series C, deal counts declined in Q3 on both a quarter-over-quarter and a year-over-year basis. In general, though, deal activity at both of these stages has largely held steady in recent years. There have been some fluctuations from one quarter to the next, but the broader trendline is quite flat. Compared to the same period three years ago, Series B deal count is down about 7%, while Series C deal count is up 5%. 

The median valuation on primary seed investments in the SaaS industry spiked to $19.8 million in Q3, up 35% from the same period last year. This was significantly higher than the median seed valuation across all sectors, which landed at $16 million in Q3. The 75th percentile for seed valuations in SaaS also soared to a new high in Q3, reaching nearly $34 million.

Amid the hunt for the next AI superstar, many early-stage software investors are increasingly willing to pay lofty prices. They’re also writing checks earlier and earlier within a company’s lifecycle. Two years ago, Garrou of Mercury Fund says it was common to see companies with $3 million to $5 million in annualized revenue raising seed rounds. Today, sought-after startups are able to raise seed funding with far less of a financial foundation. 

“It’s shifted completely,” Garrou says. “At a $1 million run rate, a lot of these companies are getting $100 million-plus pre-money valuations. So we’re finding that we, as seed and Series A investors, have got to invest even earlier.” 

As is the case at the seed stage, valuations on Series A investments in the SaaS sector have been on the rise. The median valuation on primary Series A rounds logged by SaaS companies on Carta reached $60 million in Q3 2025, up 19% year over year. That figure is also 22% higher than the median valuation on primary Series A rounds across all startup sectors in Q3. 

Part of the reason for this steady increase in seed and Series A valuations is the explosive potential that some early-stage AI startups possess. Of course, there’s no guarantee that any single seed-stage investment will succeed. But VCs are confident that at least some of these companies will eventually generate massive returns, and they’re willing to pay higher prices for the chance to get in on the ground floor. 

“These vertical AI deals, they’re typically going to be winner-take-all markets. And so people are really paying up,” Garrou says. 

SaaS valuations at Series B have been skyrocketing in 2025, with the median primary valuation climbing to $175 million in Q3, a 38% leap from the same period a year prior. This recent increase marks a sharp reversal from 2024, when the median Series B primary valuation in SaaS had declined in four consecutive quarters. 

The market for bridge fundraising at Series B also picked up in Q3, with the median valuation climbing to $155.2 million—more than twice as high as the median Series B bridge valuation in Q2. Across the board, bridge valuations at this stage were trending up: The 25th percentile for Series B bridge valuations in Q3 was $115 million, higher than the median valuation in any of the previous eight quarters. 

The recent history of primary valuations at Series D and beyond has been inconsistent in the SaaS space, with the median regularly rising and falling by significant sums from one quarter to the next. Q3, though, was the most promising stretch in quite some time, as the median primary valuation at Series D+ rose to $1.9 billion—up from $861.5 million the previous quarter, and the highest it’s been in the past two years. 

The median primary valuation in SaaS at Series C also turned sharply upward in Q3, rising 54% quarter over quarter to reach a new two-year high of $451.1 million. These new valuation highpoints at both Series C and Series D+ make clear that it’s not only early-stage SaaS startups that have seen investor interest soar. 

As the importance of AI within the SaaS industry has continued to grow, more and more venture dollars in the space are going toward startups based in the West census region, home to the AI hotbed of San Francisco. 

In Q3, nearly 68% of all cash invested in the SaaS space went to companies in the West, a significant leap from a 55.1% share two years previously. Over that same span, the Northeast and South census regions have both seen their share of software funding decline, with the South experiencing a particularly sharp dropoff: Just 8.8% of SaaS funding in Q3 went to startups from the South, compared to 19.6% back in Q3 2023. 

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