In 2019 I shared an idea with a few venture investors. Slow- or no-growth venture-backed technology companies weren’t all bad solutions or operating in bad markets. Some solved painful problems that had big potential. Some struggled because of poor execution, team dynamics, or other factors that I thought could be fixed. Surely some of these companies were worth fixing and could be grown into profitable companies—or so my thinking went.

The investors didn’t think the idea was viable. They made some points I hadn’t considered. Some I agreed with, and some I didn’t. In hindsight, I see that the low-interest-rate environment meant these companies probably could raise capital and stay alive, and the capital raises likely could happen at (sometimes modestly) increased valuations, meaning the company value was technically going up.

At that time, it was hard to acquire these companies at valuations that reflected their true state because the founders and investors had options. They could raise capital and keep going, likely at a higher valuation. The prospect of an acquisition wasn’t appealing unless it came with a material premium, which was less appealing to the acquirer. The cost to acquire these companies and the effort required to get stakeholders on board with a deal just wasn’t worth it. In many cases, starting a new company was easier.

I revisited this idea recently. Higher interest rates have reduced valuations on publicly traded technology companies. For context, Bessemer’s Cloud Index says bottom-quartile SaaS companies were trading ~6x forward revenue in 2019. Today they’re trading at ~3x. I suspect late-stage private companies are trading at a discount relative to public companies. Some of these private companies raised capital at historically high multiples in 2020–2022, which makes raising capital at today’s multiples challenging. Translation: challenged, unprofitable technology companies have limited options. Raising capital to extend runway isn’t easy, and it’s unlikely to occur at an increased valuation.

Timing matters a lot, and 2019 wasn’t the right time for what I was thinking. But I’m wondering if the time is right now. Will we see a sharp increase in unprofitable and struggling technology companies being acquired as turnarounds in the next year or two?