🕺🏻 $10M Revenue in 6 Months: Why Sell Your AI SaaS When You Can Buy the Client

AI SaaS is no longer the hottest topic. The focus has shifted to AI rollups—AI-powered acquisitions where startups raise VC money, not to sell software but to buy their clients.

AI Rollups vs. Traditional Private Equity

Private equity firms have long used rollups to acquire small businesses, bundle them into a single vertical, and scale. After a few years, they sell at 3-5x initial valuations.

AI rollups take a different approach. Instead of minor operational improvements, AI startups acquire service companies—businesses that would typically be their clients—where manual work like calls, emails, and paperwork dominates daily operations. AI automation then restructures these workflows, reducing headcount, minimizing errors, and boosting profitability. Joe Schmidt, Partner at a16z, explains this new model.

Why buy clients instead of selling to them?

Rather than spending years searching for product-market fit, AI companies can acquire their target clients and refine their software directly within those businesses. Service companies are typically slow to adopt AI, often lacking the technical expertise or urgency to modernize. Selling to them is a long, uphill battle. By acquiring these businesses instead, AI-first companies bypass adoption barriers and automate operations from within.

A More Profitable Rollup Strategy

While traditional private equity rollups focus on improving management and reducing costs, AI rollups go further by replacing a significant portion of the workforce with AI. The financial advantage is clear: Traditional service businesses are acquired at 3-6x EBITDA, while AI startups raise capital and are acquired at 10-20x EBITDA.

Buying low, automating, and scaling at AI multiples creates a massive arbitrage opportunity. To put it in perspective, you raise $5M at a $25M valuation, giving up 20% of your equity. You spend this $5M to acquire several clients, bringing in $15M in revenue and instantly boosting your valuation to $100M.

A Win-Win for Founders, VCs, and Business Owners

VCs mitigate risk. Rather than betting on an early-stage startup achieving product-market fit, they invest in businesses with existing revenue streams. The risk shifts from proving market demand to scaling an established business with AI.

Startup founders can bypass the most challenging part of building an AI company. Instead of struggling with sales, they can take control of existing businesses and use them as platforms to deploy AI. Because this is a less risky investment than a typical tech startup, it creates an opportunity for venture debt financing, allowing founders to give up even less equity.

Traditional business owners get liquidity. Many are 60+ years old, running stable but stagnating companies. Most have never received a major payout because their profits are tied up in working capital.

Pioneers: The Startup That Did It Before It Became Popular

One of my investments, Pioneers, founded by my friends Leo and Victor, is executing this strategy at an impressive pace. Their AI automates recruitment processes. Instead of spending years building a sales team and scaling SaaS revenue, they acquired two recruitment agencies generating $10M annually in just six months.

This approach made their deal highly attractive to VCs. The agencies they acquired were long-standing businesses with predictable cash flow. Their founders received solid payouts but stayed involved with performance-based incentives. Meanwhile, Pioneers transitioned from an early-stage startup to a growth-stage company, gaining complete control over its new revenue streams.

With AI deeply embedded in the agencies' operations and proving its efficiency, Pioneers' next step is to continue acquiring and optimizing new agencies.

Instead of spending 10 years grinding through traditional startup growth cycles to become a unicorn, Leo and Victor can achieve this in just a few years. As a friend and investor, I’m excited to see this happen.

Until next Sunday,
George Levin
^{LinkedIn | Consulting}