Public Markets and the Great Software Value Reordering
The public markets recently experienced their "SaaSpocalypse" moment when Anthropic unveiled Claude Cowork, and specifically its latest capabilities through a legal automation demonstration, triggering a sharp selloff that saw many non-AI SaaS companies lose 20–30% of their market cap in a single day. In the days that followed, industry analysts and fund managers have rotated out of SaaS stocks that they found susceptible to the onslaught of AI innovation. For Mercury Fund, this wasn't a surprise. It was confirmation of what we've been telling our LPs for the past two annual meetings: legacy SaaS and software companies must evolve or die in the age of AI.
Over three years ago after the launch of ChatGPT, Mercury began working with each of our SaaS portfolio companies on an "AI plan" requiring both internal and external transformation. Internally, companies needed to adopt AI tools that drive efficiency across coding, product development, and go-to-market operations. Externally, we challenged our portcos to build value-added AI extensions into their products. Over the past few years, as GenAI has led to agentic AI, our portcos have launched agents that automate workflows, orchestration systems that manage multi-agent environments, and AI solutions leveraging proprietary data to create sustainable competitive advantages. Many Mercury portcos such as Otto and RepeatMD embraced AI transformation and are now competing at a pace traditional SaaS simply cannot match.
So is SaaS actually dead? No, but it is taking a new form. Vertical SaaS is making room for Vertical AI, though the fundamental principles of software haven't changed. Whether a company is built as traditional SaaS or AI-native, the enduring differentiators remain the same: go-to-market execution, effective distribution channels, efficient customer acquisition, and high switching costs from proprietary data and workflows creating defensible moats. What AI brings to the equation is speed. We’re seeing dramatically faster time to market, faster deployment cycles, and faster time to value for customers compared to traditional SaaS solutions.
SaaS is about standardizing corporate workflows and driving efficiencies throughout an organization. The emergence of AI will displace some SaaS software which serves as a “system of record” and doesn’t continue to automate and innovate. But AI is more about creating a “system of action”, either augmenting or replacing labor with agents that take their cues from corporate-approved workflows, and providing incredible efficiency gains for their companies.
Mercury's recent AI-native investments are building agentic orchestration systems that operate customer-to-customer and workflow-to-workflow in sectors like energy, healthcare, consumer brands, and retail. These startups are launched by subject matter experts from these industries, who know how to work with industry-specific systems and workflows of record. Most of our native AI startups are performing work that once required human intervention, creating value in ways traditional SaaS never could.
Many of you have asked whether we're witnessing an AI bubble. We don't believe so. What we're seeing is a near-term over-correction, and a mid-to-long-term fundamental reordering of value within software markets. While the LLMs launched the AI revolution, value is increasingly leaking from these generalist foundational models towards vertical, domain-specific AI solutions embedded directly into workflows. The future won't be one-size-fits-all; instead, we expect to continue seeing pure SaaS deployments, on-prem solutions for highly regulated sectors like government, and hybrid models with humans in the loop.
The SaaSpocalypse may have caught Wall Street and many retail investors off guard, but Mercury positioned our portfolio for this transformation years ago. In VC, winners aren't determined by who reacts fastest to market shifts, they're determined by who anticipates and adapts to change, moving decisively before it arrives. That's been Mercury's approach to AI, and it will continue to guide our investment thesis and strategy as this market evolves.
Blockchain Thesis Update
We see the recent BitGo IPO not as an isolated event, but as a clear capital markets signal that blockchain has entered its institutional phase. With BitGo, the capital markets have opened meaningfully for this category, creating liquidity that was largely unavailable in prior cycles and reinforcing our view that blockchain has entered a stage of maturity we have yet to see in this sector.
Strategic M&A has also accelerated as large incumbents move to consolidate the category. Coinbase completed 10 acquisitions in 2025 alone, including the $2.9B purchase of Deribit and the $375M acquisition of Echo. Several others have followed a similar path. We view this consolidation as evidence that scaled players are racing to own core infrastructure as blockchain becomes embedded in mainstream financial services, giving us confidence that there will be sustained liquidity opportunities for our early-stage companies.
The global financial system is undergoing a necessary software upgrade with blockchain as the new rails. Mercury’s blockchain thesis is anchored in two core areas: stablecoins and tokenization. Together these trends will accelerate digital asset adoption globally giving US financial products a new audience of investors and bringing liquidity to previously illiquid markets.
Follow Samantha Lewis for more analysis and updates on this sector.
Mercury Fund Team Updates
Adrian Fortino joined a Midwest House Summit panel on Venture Frontiers, participating in a conversation on innovation and investment shaping the future of the Midwest. The two-day summit in Grand Rapids brought together founders, funders, creatives, and civic leaders to spotlight bold ideas and cross-sector collaboration across the region.
Heath Butler spoke at the AFROTECH Founders’ Summit, joining a panel on what it takes to win investor confidence in today’s market. The session covered financial discipline, signaling scalability, crafting a compelling founder story, and how AI has reshaped expectations for venture-backed companies.
Blair Garrou participated in a fireside chat on venture capital at the Plug and Play Tech Center’s Sugar Land Fall Expo. The conversation explored what is driving investment activity, where new opportunities are emerging, and how Texas venture continues to redefine innovation.
Heath Butler joined founders, investors, and community leaders at the Innovation x Culture Summit, hosted by Capital for the Culture HTX at the Ion Houston. The event highlighted the role of entrepreneurship and investment in Houston through a Founders’ Spotlight, strategic networking, and a Black Futures Showcase.
Aziz Gilani was featured in Venture Forward’s VC Power Hour, a virtual series for mid-career venture investors. He led a candid conversation on career growth and advancement in venture capital, sharing lessons from helping build and scale Mercury Fund and partnering with founders across the U.S.
Mercury Fund released two new Go Slow to Grow Fast podcast episodes. One episode, recorded live at Software Day at the Ion and moderated by Heath Butler, focused on how founders can capitalize on emerging trends without compromising profitability. A second CXO Summit fireside chat, moderated by Aileen Allen, examined how GenAI LLMs are shifting consumer behavior from search toward trusting AI for answers.
Mercury Fund in the News
Samantha Lewis was featured in DL News’s “Six Blockbuster Crypto IPOs to Watch in 2026,” sharing insight into what sets companies on the path to public markets. She noted that the strongest IPO candidates are prioritizing regulatory discipline and infrastructure that bridges traditional balance sheets with on-chain markets. With crypto firms raising $3.4B in IPO rounds in 2025, BitGo’s inclusion on the list stood out as a notable milestone for the Mercury Fund portfolio.
Aziz Gilani was featured in PitchBook News discussing the surge in venture secondaries and the growing consolidation across the market. He noted that recent acquisitions by major Wall Street players reflect the maturation of a historically fragmented space, and shared his view that secondary brokers are likely to increasingly align with large banks as the market evolves.
Blair Garrou shared his perspective with Carta on why the software fundraising playbook of the past 15 years no longer applies in the age of AI. He explained that AI-native SaaS is changing how companies are built and taken to market at unprecedented speed, as median seed valuations climbed to $19.8M in Q3 2025, a with Series A medians reaching to $60M.
Portco News
On January 22, BitGo went public as the first IPO of 2026 with shares trading on the NYSE under the ticker BTGO. BitGo builds regulated, institutional-grade digital asset infrastructure spanning custody, wallets, staking, trading, financing, and settlement. This public debut marks a major step for the industry and points to the institutionalization of blockchain and crypto. BitGo acquired Mercury Fund portfolio company Brassica in 2024, expanding its escrow and custodial infrastructure capabilities.
Venus Aerospace was recognized by Popular Science, which named the company’s Rotating Detonation Rocket Engine (RDRE) one of the 50 Greatest Innovations of 2025. The RDRE uses continuous rotating shockwaves to burn fuel more efficiently than traditional rocket engines, unlocking faster, lighter, and potentially more affordable high-speed travel.
Starlab reached a major milestone as its commercial space station mockup became ready for astronaut testing at NASA’s Johnson Space Center. The three-story mockup will support training and procedure development as the Mercury Fund portfolio company advances plans for a commercial successor to the International Space Station which is set to retire in 2030.
LISNR and Satsuma.ai announced a partnership to enable AI-driven, omnichannel agentic commerce across retail, travel, and mobility. By combining LISNR’s location-aware identity technology with Satsuma.ai’s platform connecting brands directly to AI agents, the collaboration expanded access to real-time, context-aware transactions beyond the small set of companies directly integrated with foundational LLM platforms.
Plasma launched its mainnet and native token, XPL, going live with $2B in stablecoin TVL and ranking among the world’s top 10 blockchains. The launch implied a fully diluted valuation above $8B and advanced Plasma’s mission to move digital dollars globally, with products including Swarm, a regulated platform for tokenized equities, and Plasma One, a stablecoin-native neobank.
