2026 State of Scaling:
The Great Sorting
Annual Topline Growth and Operational Efficiency Report
We've reached a point where historical benchamrks alone are no longer enough to identify the next generation of winners. Those numbers tell only part of the story. So this year, we took a different approach.
A few years into the AI era, a new class of companies is beginning to redefine what top quartile performance looks like. The gap between high-growth, AI-forward companies and incumbent software companies is widening into two distinct tiers.
The Great Sorting has begun. Not every company will make it to the other side.
2026 State of Scaling:
The Great Sorting
Annual Topline Growth and Operational Efficiency Report
We've reached a point where historical benchmarks alone are no longer enough to identify the next generation of winners. Those numbers tell only part of the story. So this year, we took a different approach.
A few years into the AI era, a new class of companies is beginning to redefine what top quartile performance looks like. The gap between high-growth, AI-forward companies and incumbent software companies is widening into two distinct tiers.
The Great Sorting has begun. Not every company will make it to the other side.
Where the Market Stands
The Great Sorting is visible in both public and private markets. Over the past year, the public software index declined 3%, underperforming every other sector.
Within software, clear winners are starting to emerge. High-growth companies – concentrated in infrastructure and security – have benefited from AI tailwinds, with NTM revenue multiples rebounding from ~7x in Q1’26 to 9.2x in Q2’26.
As that separation widens, we believe two questions are separating those companies from the rest:
- How are they embedding AI across both their workforce and product strategy?
- How are they translating AI investment into real revenue and monetization?
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A New Benchmark
In the private markets, a new class of companies is compressing the journey from $1 million to $100 million ARR into just 2-4 years — less than half the time it takes incumbent software companies. We call them Pacesetters.
They are largely young, AI-forward companies with hybrid or consumption-based pricing models that let customers start small, prove product value quickly, and expand as ROI becomes clear.
Their growth is driven primarily by new business: roughly 70%+ of gross new revenue comes from new logo ARR. And that early proof of value holds. Net retention runs 120-146%, well above the software norm.
As Pacesetters capture market share, incumbents are increasingly turning to their existing customer base as a more reliable growth lever.
The rate of growth appears to come with real tradeoffs. Within our dataset, Pacesetters run deeply negative FCF margins, have gross margins below historical software norms, and spend levels roughly 2.3x higher than peers at earlier stages. But their burn multiples are better than those same peers once they scale beyond $100M in ARR. They're spending more at earlier stages and generating more revenue per dollar invested at scale.
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AI as the Operating Layer
Across the ICONIQ portfolio companies we surveyed, more than 70% of employees are, on average, daily active users of AI tools, with adoption highest in R&D. The impact is beginning to show up in productivity. ARR per employee is rising across most revenue bands, as headcount growth has generally slowed. The exception is the fastest-growing businesses, which are still hiring aggressively to keep pace with demand while sustaining high ARR per FTE.
The org chart, however, hasn’t changed nearly as much as the work itself. Functional headcount mix remains relatively stable, suggesting that AI is helping people do more within existing roles before it reshapes how companies allocate talent. We see this pattern across R&D, S&M, and G&A, where adopters are using AI to compress development cycles, expand customer coverage, and automate increasingly complex workflows.
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The Path Forward
The fundamentals of building a great software company still matter. But we believe the pace and discipline with which Pacesetters are reaching key milestones — growing faster while generating more revenue per dollar spent — is setting a new standard for what software excellence looks like today.
For companies outside this group, the path forward may require embedding AI across both workforce and product strategy, and translating that investment into durable revenue.
The Great Sorting is well underway. Where companies land will depend on how quickly they adapt.
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Disclaimer
The views expressed in this presentation are those of ICONIQ Venture & Growth ("ICONIQ" or the "firm"), are the result of proprietary research, may be subjective, and may not be relied upon in making an investment decision.
This presentation is for general information purposes only and does not constitute investment advice. This presentation must not be relied upon in connection with any investment decision. The information in this presentation is not intended to and does not constitute financial, accounting, tax, legal, investment, consulting or other professional advice or services. Nothing in this presentation is or should be construed as an offer, invitation or solicitation to engage in any investment activity or transaction, including an offer to sell or a solicitation of an offer to buy any securities which should only be made pursuant to definitive offering documents and subscription agreements, including without limitation, any investment fund or investment product referenced herein.
Any reproduction or distribution of this presentation in whole or in part, or the disclosure of any of its contents, without the prior consent of ICONIQ, is strictly unauthorized.
This presentation may contain forward-looking statements based on current plans, estimates and projections. The recipient of this presentation ("you") are cautioned that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements. The numbers, figures and case studies included in this presentation have been included for purposes of illustration only, and no assurance can be given that the actual results of ICONIQ or any of its partners and affiliates will correspond with the results contemplated in the presentation. No information is contained herein with respect to conflicts of interest, which may be significant. The portfolio companies and other parties mentioned herein may reflect a selective list of the prior investments made by ICONIQ.
Certain of the economic and market information contained herein may have been obtained from published sources and/or prepared by other parties. While such sources are believed to be reliable, none of ICONIQ or any of its affiliates and partners, employees and representatives assume any responsibility for the accuracy of such information.
All of the information in the presentation is presented as of the date made available to you (except as otherwise specified), and is subject to change without notice, and may not be current or may have changed (possibly materially) between the date made available to you and the date actually received or reviewed by you. ICONIQ assumes no obligation to update or otherwise revise any information, projections, forecasts or estimates contained in the presentation, including any revisions to reflect changes in economic or market conditions or other circumstances arising after the date the items were made available to you or to reflect the occurrence of unanticipated events.
For avoidance of doubt, ICONIQ is not acting as an adviser or fiduciary in any respect in connection with providing this presentation and no relationship shall arise between you and ICONIQ as a result of this presentation being made available to you.
ICONIQ is a diversified financial services firm and has direct client relationships with persons that may become limited partners of ICONIQ funds. Notwithstanding that a person may be referred to herein as a "client" of the firm, no limited partner of any fund will, in its capacity as such, be a client of ICONIQ. There can be no assurance that the investments made by any ICONIQ fund will be profitable or will equal the performance of prior investments made by persons described in this presentation.
Any information in this presentation is directed at, and intended for, only persons who are experienced institutional or professional investors (“professional investors”) as defined by applicable law and regulation. Any person that is not a professional investor is not an intended recipient of this presentation and the matters discussed herein.
ICONIQ is a trading name of certain ICONIQ Partners (UK) LLP. ICONIQ Partners (UK) LLP (Registration Number: 973080) is an appointed representative of Kroll Securities Ltd. (Registration Number: 466588) which is authorised and regulated by the Financial Conduct Authority. ICONIQ Partners (UK) LLP is a limited liability partnership whose members are ICONIQ Capital (UK) Ltd, Seth Pierrepont and Lou Thorne, and it is registered in England and Wales and has its registered office at 27 Soho Square, London W1D 3QR. ICONIQ Partners (UK) LLP acts as an adviser to ICONIQ Capital LLC
Unless otherwise indicated, the views expressed in this presentation are those of ICONIQ Venture and Growth (“ICONIQ" or the “Firm"), are the result of proprietary research, may be subjective, and may not be relied upon in making an investment decision. Information used in this presentation was obtained from numerous sources. Certain of these companies are portfolio companies of ICONIQ Venture and Growth. ICONIQ Venture and Growth does not make any representations or warranties as to the accuracy of the information obtained from these sources.
This presentation is for general information purposes only and does not constitute investment advice. This presentation must not be relied upon in connection with any investment decision. The information in this presentation is not intended to and does not constitute financial, accounting, tax, legal, investment, consulting or other professional advice or services. Nothing in this presentation is or should be construed as an offer, invitation or solicitation to engage in any investment activity or transaction, including an offer to sell or a solicitation of an offer to buy any securities which should only be made pursuant to definitive offering documents and subscription agreements, including without limitation, any investment fund or investment product referenced herein.
Any reproduction or distribution of this presentation in whole or in part, or the disclosure of any of its contents, without the prior consent of ICONIQ, is strictly unauthorized.
This presentation may contain forward-looking statements based on current plans, estimates and projections. The recipient of this presentation ("you") are cautioned that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements. The numbers, figures and case studies included in this presentation have been included for purposes of illustration only, and no assurance can be given that the actual results of ICONIQ or any of its partners and affiliates will correspond with the results contemplated in the presentation. No information is contained herein with respect to conflicts of interest, which may be significant. The portfolio companies and other parties mentioned herein may reflect a selective list of the prior investments made by ICONIQ.
Certain of the economic and market information contained herein may have been obtained from published sources and/or prepared by other parties. While such sources are believed to be reliable, none of ICONIQ or any of its affiliates and partners, employees and representatives assume any responsibility for the accuracy of such information.
All of the information in the presentation is presented as of the date made available to you (except as otherwise specified), and is subject to change without notice, and may not be current or may have changed (possibly materially) between the date made available to you and the date actually received or reviewed by you. ICONIQ assumes no obligation to update or otherwise revise any information, projections, forecasts or estimates contained in the presentation, including any revisions to reflect changes in economic or market conditions or other circumstances arising after the date the items were made available to you or to reflect the occurrence of unanticipated events. Numbers or amounts herein may increase or decrease as a result of currency fluctuations.
For avoidance of doubt, ICONIQ is not acting as an adviser or fiduciary in any respect in connection with providing this presentation and no relationship shall arise between you and ICONIQ as a result of this presentation being made available to you.
ICONIQ is a diversified financial services firm and has direct client relationships with persons that may become limited partners of ICONIQ funds. Notwithstanding that a person may be referred to herein as a "client" of the firm, no limited partner of any fund will, in its capacity as such, be a client of ICONIQ. There can be no assurance that the investments made by any ICONIQ fund will be profitable or will equal the performance of prior investments made by persons described in this presentation.
Any information in this presentation is directed at, and intended for, only persons who are experienced institutional or professional investors (“professional investors”) as defined by applicable law and regulation. Any person that is not a professional investor is not an intended recipient of this presentation and the matters discussed herein.
ICONIQ is a trading name of ICONIQ Partners (UK) LLP. ICONIQ Partners (UK) LLP (Registration Number: 973080) is an appointed representative of Kroll Securities Ltd. (Registration Number: 466588) which is authorised and regulated by the Financial Conduct Authority. ICONIQ Partners (UK) LLP is a limited liability partnership whose members are ICONIQ Capital (UK) Ltd, Seth Pierrepont and Lou Thorne, and it is registered in England and Wales and has its registered office at 27 Soho Square, London W1D 3QR. ICONIQ Partners (UK) LLP acts as an adviser to ICONIQ Capital LLC