The average AI-native company trades at 37.5x revenue, the average software business at
7.6x. In Europe the multiple is even lower.
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AI has split the software market in two.
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On one side, AI-native companies command astronomical valuations. Multiples that bear
little relationship to fundamental value. The label alone is enough.
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On the other side, established software businesses, good and growing businesses with strong
customer lock-in and high switching cost, are sitting on compressed multiples. Multiples that
might compress even further in the future.
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Many funds invested in these companies at revenue multiples roughly twice what they are
trading at now. Because the sentiment changed, valuations dropped sharply.
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Here’s the problem:
If a well-run software company needs capital right now, it means doing a priced round. A
priced round resets the valuation. And if the new valuation is shown, it becomes official. It
shows up in every LP report and portfolio mark.
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So many companies and investors do nothing. The company sits with the capital need unmet,
hoping for sentiment to reverse.
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This is one of the stranger dynamics in private markets right now. Companies that are
showing healthy growth, generating recurring revenues, serving their customers with a
mission-critical solution, are paralysed by a valuation multiple that shifted.
For those companies, a royalty investment offers a way through.

Capital comes in, the valuation debate is set aside entirely, and growth does not have to wait
for a market that may never return to its historic revenue multiples.
The tragedy is that these companies cannot access capital because of a number that everyone
already knows is wrong.

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