Predictions that AI will eat SaaS’s lunch, and potentially SaaS itself, are everywhere. If correct, that would mean a seismic shift in the face of the technology landscape and the power players in software.

Despite talk of a ‘bubble’, VCs and growth investors continue to place big bets on AI, which received 53% of all global venture dollars invested in the first half of 2025.

But while there’s no shortage of noise around AI disrupting SaaS, not enough attention is being paid to the SaaS companies already using it to quietly pull ahead.

AI native or AI reboot

Two arguments dominate this debate. One camp argues that new AI-first software will leapfrog the incumbents - including traditional SaaS - due to faster development cycles, day-one AI integration, and the ability to scale rapidly through self-learning algorithms.

Alternatively, that AI can be deployed to transform legacy businesses in traditional sectors such as logistics, healthcare, or financial services, from the inside. Combining their brand value, customer understanding, and vertical expertise with the operational and innovation benefits of AI, these businesses will bypass horizontal SaaS tools in favour of building their own tailored AI solutions in-house.

Top investors are committing heavily to both these models, and no doubt some will be hugely successful. However, both will demand top-class execution and involve significant risks to get it right.

Building an AI-native solution without a known brand, customer data pool, or vertical customer expertise is a huge undertaking. Retrofitting AI in a functioning, set-in-its-ways business, with limited access to expensive AI talent, arguably even more so.

A third way

At Copilot Capital , we believe there is a third way, which offers the best of both worlds, alongside significantly less risk.

There is a class of businesses that are ideally placed to combine the best of SaaS with the best of AI. Less than 10 years old, they are young, founder-led software companies, fast-growing and agile, with modern, adaptable tech stacks. They already own the customer relationships and have built up strong brands and, critically, a wealth of data to feed AI models and build more targeted, effective products.

These companies are deeply verticalised, with founders who bring real-world experience, judgment, and domain knowledge – things no algorithm can replicate. They actually understand their customers; what motivates them, how they behave, what keeps them up at night, and can ensure that AI-driven initiatives remain grounded in genuine needs.

With these foundations these businesses have a head start in becoming vertical AI leaders more effectively than AI-first or legacy transformation models. As investors, our role is to help drive this agenda forward by advising on tools and models, the most promising opportunities, and how data strategies can make those a reality.

We’re already seeing this in action across our portfolio:

• PriceShape is using AI-driven analytics to help retailers fine-tune pricing dynamically, improving both competitiveness and margins.

• SecureFlag has developed an AI-powered cybersecurity training platform that rapidly adapts its content to new threats

• Relesys is applying predictive insights to workforce data, helping businesses reduce employee churn and improve engagement.

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Superior growth potential

In a market where the hype around AI-first businesses means valuations are through the roof, many existing SaaS businesses offer fantastic value. There is still a premium to pay for the best, but the opportunity to unlock new revenue streams and boost efficiency through smart investment in AI means the opportunity for valuation creation is huge.

The idea that AI will kill SaaS makes for good headlines. But the reality is more nuanced. In software, distribution, domain knowledge and data still matter. AI can enhance all three, but only in the hands of those who already understand their customers.

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