AI sparks SaaS revival as enterprises unlock budgets in 2025

Integrating and adapting to AI is key, said multiple founders.

“Will there be an opportunity for startups to redesign and reimagine, I believe it is true. Companies that are able to adapt will survive, companies that cannot be disrupted” Mathrubootham said.

“We definitely see an improvement in demand, especially enterprises are now more open to expanding their budget for SaaS tools that offer more value using AI and automation,” Said Krish Subramanian, cofounder and CEO of ChargeBee.

“Most SaaS founders that I speak to say that things have improved in the last 18 months. Almost everyone have said this, most-likely we see the sentiment improving in the US market,” Said Shivakumar Ganesan, cofounder and CEO of Exotel.

Improved budgets but longer sales cycles

Customer budgets are going up for SaaS companies, but sales cycles are still long.

“From 2023 to now, we see enterprises willing to pay for SaaS tools that offer value. Budgets have gone up by at least 10-15% for SaaS companies,” said a founder of a top SaaS firm requesting anonymity.

While not yet back to the heady highs of the pandemic-fueled tech boom, the momentum is shifting.

“The demand is not as high as it used to be, however we are seeing improvement in mission critical software that is also powered with AI. We see better growth in vertical SaaS segment,” Said Manav Garg, Founding Partner at Together.

Vertical SaaS refers to software-as-a-service solutions tailored for the specific needs of a particular industry or niche, like healthcare, retail, or logistics.

AI is helping win-rates go up among SaaS customers, said Aneesh Reddy, cofounder of IPO-bound Capillary Technologies.

“Some deals that we have won, we definitely hear customers appreciating AI. So, AI is expanding the TAM (Total Addressable Market) for SaaS companies. SaaS is transforming and if you don’t transform with it, then the company is dead,” said Reddy.

Also read: India’s SaaS sector sees green shoots as AI drives investment surge in 2025

"Sales cycles are not fully come back yet, there is still some uncertainty. There is some budgetary relaxation but the decision-making cycle has gone down. From 2023 to 2024, where we saw no one wanting to write any cheques, that part has come down, sales cycles are still long," said Khadim Batti, cofounder of CEO of Whatfix.

From survival to scale

The past year has been challenging for most SaaS companies. As macroeconomic uncertainty loomed large, enterprises held off on software spending, scrutinizing every line item and deferring purchases that weren’t deemed essential. This led to slower sales cycles, pressure on renewals, and an increased focus on profitability over growth.

Also read: SaaS firms brace for rough ride as macroeconomic conditions worsen 

But the tide appears to be turning. Budgets that were on hold in late 2023 and early 2024 are now being unlocked, leading to a noticeable uptick in pipeline conversions and new contracts being signed.

This shift is particularly visible among mid to large enterprises, which are now looking to adopt AI-first solutions as part of their digital transformation strategies.

“AI is helping SaaS companies rewrite everything. AI lets you build 10X better products. Over the last five to ten years, every SaaS company that has been started and founded is an incremental SaaS company. But in the last two years, AI is helping SaaS build 10X better products and companies should tap this,” Said Rajan Anandan, managing partner at PeakXV during his address at SaaSBoomi event on March 25.

While consumer sentiment is looking up, several SaaS founders are still being cautious and slowing down hiring.

“One thing that we have definitely done is slowed down hiring. It is a conscious move, we are not going and laying off people, we are investing more and more on tools, rather than pn hiring,” said, Saravana Kumar, founder of Kovai.

AI becomes a catalyst

The surge in interest is being largely driven by the promise of AI to enhance productivity and automate routine workflows. Enterprises are exploring software solutions that embed generative AI capabilities—whether for customer support, analytics, sales enablement, or internal operations.

Companies that adopted AI early or have repositioned themselves as AI-first are seeing stronger traction, say insiders. For customers, tools that offer faster decision-making and measurable efficiency gains are moving from “nice-to-have” to “must-have” status.

“SaaS company today cannot be just a SaaS company anymore, it has to come up with more solutions using AI. Paradigms are changing but the need for SaaS tools are not changing. AI is opening up new opportunities for SaaS companies,” Said Suresh Sambandam, cofounder of Kissflow.

At the same time, while the overall buying sentiment is improving, customers remain discerning.

“Cost optimization is still a key theme, and software providers are expected to clearly articulate ROI and business value. Mission critical software is still winning in the market, bundled offerings, usage-based pricing, and transparent performance metrics are becoming more important in enterprise negotiations,” Said Arvind Parthiban, Cofounder of SuperOps.

AI is also changing pricing models for SaaS companies.

“Pricing will become more value or outcome-based. As more and more automation happens, we will see more consumption-based model,” Said Freshworks’ Mathrubootham.

Green shoots, consolidation ahead but no boom yet

Still, industry leaders are tempering expectations. The rebound, while real, is not a return to the hyper-growth days of 2021. It’s a more grounded phase of growth—focused on sustainable scaling, thoughtful expansion, and leveraging AI to create differentiated offerings.

Speaking about the consolidation within the SaaS industry, Aneesh Reddy said that consolidation in the AI-era is bound to happen.

As enterprises continue to explore AI and increase allocations to cloud-based software, SaaS companies with clear value propositions and strong execution could be poised to gain.