The software valuation gap, walking away post-LOI, and AI8

THE CARRY

1. Cross-Podcast Themes

Smart capital avoids overpaying by focusing on internal returns

A public buyer just admitted private equity is struggling to match their effective multiples in software. Jeremy Segal on M&A Science outlined how Progress beats sponsors by shifting high-cost engineering targets immediately to Bangalore. They pay a competitive headline price, but the aggressive offshore integration pushes the effective EBITDA multiple down to their target range because “a lot of the things that Chef was doing in much more expensive geographies were things that we knew we could do in lower-cost geographies.”▶ 20:24

This mirrors a broader shift away from paying up for static moats without a clear internal growth plan. Pat Dorsey told Capital Allocators his firm ignores pure defensibility, hunting instead for obvious reinvestment runways where profits plow directly back into high-return internal projects. When a business can compound its own capital internally, it makes the classic capital allocation conundrum "moot." Watch full episode

The dominance of foundational AI models is forcing the market to hunt for secondary advantages

The value in AI is rapidly concentrating at the foundational layer. Lucas Swisser warned on How I Invest that Anthropic's massive scale vastly overshadows independent application revenue, meaning raw generative features offer zero defensibility. Applications highly exposed to foundational coding or text generation will get crushed unless they build a "real durable advantage" through complex data network effects. Watch full episode

This concentration of power is pushing smart capital toward indirect plays. Dambisa Moyo noted on Capital Allocators that founders often fixate on the visible peaks of a new trend, but her family office avoids the obvious tech giants entirely. Instead, they treat the AI wave as a super cycle and hunt for second-order effects in sectors like healthcare and education, prioritizing foundational energy infrastructure because “no country ever in history has ever achieved economic success without having um cheap energy.”▶ 49:52

Top-performing firms are formalizing the power to walk away from bad deals

A stalled integration kills deal IRR, prompting aggressive buyers to institutionalize the ability to pull the plug early. Jeremy Segal on M&A Science revealed that Progress codified an Orange Flags system precisely because targets often withhold crucial information post-LOI. The moment a seller drags their feet on basic diligence, the system forces an immediate CEO-level discussion to either force transparency or walk away. Watch full episode

That same willingness to say no is becoming a massive separator for capital allocators facing deployment pressure. Scott Abu Khair on How I Invest argued that walking away is a core competitive advantage for Pinkus Capital, pointing to a multi-million dollar transaction they abandoned to protect a decade-long relationship. The firm explicitly sets absolute-dollar drawdown thresholds to provide the governance cover required to resist short-term pressures and decline mediocre opportunities. Watch full episode

2. Best Of the Week

• Capital Allocators: Pat Dorsey argues that Return on Invested Capital is largely useless for spotting modern moats in capital-light software companies, warning investors that the "denominator is nothing."
• How I Invest: David Weisburd shatters the illusion of venture capital as a traditional asset class, insisting it is strictly an access class where second-quartile funds are functionally dead money.
• M&A Science: Sean Rodri warns that high-volume deal shops lose the entire transaction if they fail to treat a target with intense, almost parental care for the first 90 to 180 days post-close.

3. Most Quotable

"What we found in the data is you're actually you're much more likely to get a 10x in the pool as on a percentage basis if you're above $10 billion in market cap than below."

Lucas Swisser on How I Invest · July 18, 2026. A stark warning against the conventional wisdom of hunting pre-revenue AI startups for venture-scale returns.

"Einstein famously said compound interest was the eighth wonder of the world. But he was wrong. What really is the eighth wonder of the world is the compounding of other things, specifically brand and access to information."

David Weisburd on How I Invest · July 18, 2026. A sharp reminder that raw capital accumulation rarely outpaces structural network advantages.

Bottom Line: While the market waits for 2021 multiples to rationalize, the smartest buyers are engineering their own pricing relief through aggressive post-close synergies and strict kill-deal governance.