Key Takeaways
- • Private equity and venture capital application software deal volume contracted 21% year-over-year to 3,665 transactions in 2025, marking the third consecutive year of decline, according to S&P Global Market Intelligence data.
- • Aggregate deal value reached $148.72 billion in 2025—the highest total since 2022—while median transaction size increased to $280 million from $241.8 million in 2022, signaling a consolidation toward larger, more selective deals.
- • AI-related software deals surged 57% to 589 transactions in 2025 from 375 in 2024, demonstrating investor pivot toward AI-integrated solutions despite broader software sector uncertainty.
- • Market participants lack pricing clarity on AI disruption risks to software company valuations and growth trajectories, with public market volatility in early February 2026 reflecting institutional anxiety about automation's impact on software economics.
- • Ares Management CEO Michael Arougheti stated that private market managers have been grappling with AI disruption risk for five-plus years, contrasting with public markets' delayed recognition of the threat.
Summary
Private equity and venture capital investment in application software experienced material volume contraction in 2025, declining 21% to 3,665 deals from 4,638 in 2024. This marks the third consecutive year of deal volume erosion, underscoring sustained headwinds in the sector. However, the aggregate deal value reached $148.72 billion—the highest level since 2022, the year ChatGPT was released—suggesting that remaining transactions have grown larger and more strategically concentrated.
The median deal size for private equity software transactions increased to $280 million in 2025, up from $241.8 million in 2022, indicating a shift toward fewer, larger acquisitions. This pattern reflects capital redeployment away from smaller software targets toward higher-conviction bets with clearer value propositions. The decline in volume coupled with rising median deal sizes suggests PE firms are becoming more selective and cautious in their underwriting approach.
The slowdown stems largely from investor uncertainty about artificial intelligence's disruptive potential for software company growth models. A technology sector selloff in early February 2026 revealed that public market participants are grappling with anxiety that AI-powered automation could erode software company valuations and growth rates. Scott Denne, a senior research analyst at 451 Research, attributed this volatility to the market's inability to effectively price AI risk: "What is happening is that they don't feel like they have clarity on how to price the risk of AI."
In contrast, private market managers have been actively contending with AI disruption scenarios for years. Ares Management CEO Michael Arougheti stated in a February 10 conference interview that alternative asset managers have been evaluating both opportunities and risks from technology and AI implementation for at least five years, suggesting that some institutional investors possess deeper analytical frameworks than public market participants. Despite volume headwinds, AI-specific software deals surged 57% to 589 transactions in 2025 from 375 in 2024, indicating that while overall software investment has slowed, capital is increasingly flowing toward AI-integrated or AI-focused solutions.
The median deal size for private equity software transactions increased to $280 million in 2025, up from $241.8 million in 2022, indicating a shift toward fewer, larger acquisitions. This pattern reflects capital redeployment away from smaller software targets toward higher-conviction bets with clearer value propositions. The decline in volume coupled with rising median deal sizes suggests PE firms are becoming more selective and cautious in their underwriting approach.
The slowdown stems largely from investor uncertainty about artificial intelligence's disruptive potential for software company growth models. A technology sector selloff in early February 2026 revealed that public market participants are grappling with anxiety that AI-powered automation could erode software company valuations and growth rates. Scott Denne, a senior research analyst at 451 Research, attributed this volatility to the market's inability to effectively price AI risk: "What is happening is that they don't feel like they have clarity on how to price the risk of AI."
In contrast, private market managers have been actively contending with AI disruption scenarios for years. Ares Management CEO Michael Arougheti stated in a February 10 conference interview that alternative asset managers have been evaluating both opportunities and risks from technology and AI implementation for at least five years, suggesting that some institutional investors possess deeper analytical frameworks than public market participants. Despite volume headwinds, AI-specific software deals surged 57% to 589 transactions in 2025 from 375 in 2024, indicating that while overall software investment has slowed, capital is increasingly flowing toward AI-integrated or AI-focused solutions.
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