Enterprise software private equity faces disastrous returns
The guest argued that private equity portfolios heavily exposed to legacy enterprise software will face disastrous returns because AI introduces cheap competition that was not priced into historical valuations.
The argument
The guest stated that roughly 30% of the private equity industry over the past decade has been devoted to enterprise software, and many of these acquisitions were priced under the assumption of a future without AI.
The thesis, stress-tested
✓ What validates it
- ✓Write-downs in private equity portfolios holding legacy SaaS assets
- ✓Decreased valuation multiples for enterprise software companies during private secondary transactions or IPOs
▸ Risks discussed
- ▸Some enterprise software companies may successfully integrate AI and defend their moats
Hear it yourself
"I was just doing one thing. And every day, he would ask me a question that I did not know the answer to. And he didn't do it to provoke me or to show me how smart he was. He was showing me to connect the dots. And I do think that that's a big part of what goes on in our world today. Can you take what's happening geopolitically? Can you take what's happening in technology? Can you take what's happening in financial markets? Can you take all the personalities of people, and can you put it together in a coherent way"
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