The Software Exit Gap: Why Good Businesses at £1–5m ARR Have Fewer Options Than They Should
Imagine you’ve built a software business doing £3m ARR, growing at 20% a year, with a strong product, loyal customers, and a team capable of taking it further. You’re reinvesting in growth rather than optimising for profit – which is exactly the right decision at this stage. By most measures, this is a genuinely good business.
And yet, when you start exploring your options, the buyer pool is smaller than you’d expect. This isn’t a reflection of the business – it’s a structural feature of the market.
Why Traditional PE Doesn’t Fit
Most private equity funds are built around a leveraged buyout model. Debt is central to how they generate returns, which means they need businesses with enough profitability to service that leverage – typically £2–3m EBITDA as a minimum. A software business reinvesting for growth and operating around breakeven, however healthy, simply doesn’t fit that model.
Beyond the financials, most PE deals are built around a founder who is fully committed to the business – in the hot seat, driving growth, and accountable for delivering the plan that underpins the investment. If you’re looking to step back or reduce your day-to-day involvement, and don’t have a team ready to step up, that narrows the field significantly. PE at this end of the market isn’t designed for founders who are ready to transition out without a clear successor already in place.
Some funds pursue a buy-and-build strategy – acquiring businesses like yours as a platform or bolt-on for something larger. That can work, but it’s a different kind of transaction with different priorities, and it doesn’t always serve the founder or the business well.
Why Trade Buyers Often Want More Scale
Corporate development teams at larger technology businesses are typically looking for acquisitions that move the needle – whether that’s revenue, customers, technology, or market position. At <£10m ARR, many software businesses are below the threshold where a trade buyer’s integration costs and management attention are justified. The product might be exactly what they need, but the scale isn’t there yet.
There are exceptions – strategic acquirers who want specific technology or a particular customer base – but they’re unpredictable and rarely represent a reliable exit path.
The Gap Is Real – But So Is the Opportunity
The result is a genuine market gap. Founders with strong, growing software businesses find themselves caught between buyers who need more profitability and buyers who need more scale. The temptation is to conclude that the business needs to grow significantly larger before exploring options. Sometimes that’s the right answer. But often the issue isn’t the business – it’s finding the right type of buyer.
A Different Kind of Partner
This is exactly the gap we focus on at ScaleUp Capital. We don’t use debt to structure transactions, which means we don’t need the level of profitability that traditional PE requires. We’re comfortable investing in businesses that are between breakeven and £2m EBITDA – backing the trajectory rather than waiting for a specific EBITDA threshold to be hit.
We’re also built for founder transitions, and we’re flexible on structure. Some founders want a full exit – a clean 100% buyout that allows them to step away entirely. Others want to take some money off the table while retaining equity and staying involved in the next stage of growth. We’re comfortable with everything across that spectrum, from full acquisitions to partial buyouts, and we work with founders to find the structure that fits their situation rather than defaulting to a standard deal shape.
And unlike a trade buyer or a buy-and-build platform, we’re investing in the business on its own terms. That means continuing to invest in the product, the team, and the go-to-market so the business can reach its full potential.
For founders of software businesses at £1–5m ARR, the exit market can feel frustratingly thin. Often the issue isn’t the business – it’s that most buyers aren’t built for this stage. We are.