AI is breaking the capital structures of enterprise software.

THE CARRY

1. Cross-Podcast Themes

AI is breaking traditional software and infrastructure investing.

Enterprise software debt just hit a wall. On Private Equity Funcast, Kenny Tang pointed out that the release of Claude's new capabilities in February 2026 shattered the illusion of SaaS as pristine collateral. Broadly syndicated software loan prices fell immediately from 94 cents to 87 cents on the dollar as lenders priced in existential obsolescence. “Two things actually hit impacted the private credit market,”▶ 32:45 (play from 32:45) Tang noted, signaling a massive shift away from software into hard assets. ``

Vik Uppal is explicitly sitting this infrastructure buildout out. On Capital Allocators, he drew a direct parallel between today's AI data center rush and the late 1990s telecom boom. The traffic projections back then were entirely accurate, yet the debt structures still collapsed and dark fiber traded for pennies on the dollar. “If you look at during the internet age, it was the same discussion with fiber,”▶ 37:47 (play from 37:47) Uppal observed, warning that lenders taking on technology risk accept capped upside against total loss. ``

Meanwhile, AI is breaking the traditional horizontal software investment model. On How I Invest, Joseph Coyne noted that horizontal AI companies function primarily as commoditized utility layers, destroying the defensible margins historically found in broad enterprise SaaS. Pure technical tools fail to address legacy workflows in regulated verticals. “When we think about horizontal, we think about more utilities that are foundational to AI,”▶ 39:07 (play from 39:07) Coyne explained, arguing that defensible software margins now belong exclusively to vertical products built by domain veterans. ``

Post-close diligence targets the managers.

Outside-in due diligence rarely catches internal friction. Flor Kassai runs a 90-day diagnostic across leadership and finance immediately following an acquisition. On Dry Powder, she explained how auditing board pack quality and reporting systems two levels below the CFO determines whether a portfolio company can actually support expansion. The firm evaluates specific executive competencies directly against underwriting milestones to decide whether to support, supplement, or replace talent before initial plans stall. Listen to the full episode

Enterprise software acquirers routinely misdiagnose sales slumps by firing bottom-quartile reps. John McMahon argued on M&A Science that this preserves the underlying capacity deficit because the frontline manager simply hires another cohort that misses quota two quarters later. “I've seen it in many cases where you wonder why these sales reps are not performing,”▶ 20:21 (play from 20:21) McMahon observed, noting that a single producer closing heavy volume frequently masks an entirely broken regional pod. ``

Private capital has shifted from generating alpha to gathering fees.

Private equity scale has fundamentally shifted business models from generating alpha to gathering assets. Vik Uppal acquired a credit shop to bypass early fund drag, restructuring it to avoid the overhead requirements that force continuous capital deployment. On Capital Allocators, he observed that “these big platforms have effectively become factories where they're focused on how do we make as [much management fee]”▶ Play (play from 0:00) rather than waiting for genuine value. ``

That deployment mandate created a massive overhang of non-performing paper. Jack Selby noted on How I Invest that thirteen years of cheap money warped the economics of venture capital, leaving zombie funds stranded with illiquid assets. Firms classified as B-minus or worse missed the 2021 market peak and now ride out ten-year lifecycles simply to collect fees. “The industry has done a poor job of returning capital to its investors over the last decade,”▶ 0:18 (play from 0:18) Selby said, estimating the liquidation cycle is only in the second inning. ``

2. Best Of the Week

Capital Allocators: Zack McGuire combines public and private vehicles into a single 70 percent growth sleeve for CHOA, treating equity risk as one asset class indifferent to structure. Read more.

Dry Powder: Flor Kassai treats founder outreach as a sunk cost, pointing to Inflexion's acquisition of Easyfairs which only closed after a decade of continuous contact. Read more.

How I Invest: Brijesh Jeevarathnam reviewed 40 years of proprietary Adams Street data and found that just 7 percent of venture-backed companies generate all industry gains, while "the rest 93% is just a wash." Read more.

M&A Science: John McMahon insists that pipeline predictability comes down to rigorous deal qualification by managers, noting “the greatest sign of a whether or not a manager is truly involved with their people is how accurate they can forecast.”▶ 46:22 (play from 46:22) Read more.

Private Equity Funcast: Devin Mathews points out the mathematical reality of distressed leveraged loans trading at 82 cents: “The only time the loan is worth less than a dollar, right, is if you can't pay back all of the loan. If you can't pay back all the loan, you can't pay any of the equity.”▶ 37:11 (play from 37:11) Read more.

3. Most Quotable

"So much of Silicon Valley, the pitch today is like, I'm going to go find you the next Elon Musk at age 24. That is a terrible pitch because the probability of that is basically zero."

Jack Selby on How I Invest · Nov 8, 2026. A sharp reminder that power laws are a statistical trap for most institutional fund lifecycles.

"We do minority deals, we do majority deals, but the the emphasis is definitely on growth. And I think that's a misconception. As people think about private equity, they try to label it in a single way."

Kate Nimmo on Private Equity Funcast · Nov 8, 2026. A reminder that adding headcount is often the straightest line to enterprise value in founder-led software.

"Our reup on a venture fund begins the day after we commit to the current one. So in other words, it's a three-year process before they raise the next fund. We're in continuous DD on the next fund."

Brijesh Jeevarathnam on How I Invest · Nov 8, 2026. LP allocations are moving away from 90-day sprints toward rolling audits of early-stage managers.

Bottom Line: While consensus capital continues crowding into early-cycle AI infrastructure, the sharpest allocators are quietly hunting for mispriced recapitalizations and distressed software debt.