This Silicon Valley VC giant has a warning for software stocks

One of the world’s largest venture capital firms says investors are underestimating the carnage artificial intelligence will create for software companies, warning their pivots towards AI are likely just marketing.
Photo: Isaac Kim (Laure Andrillon)

Emma Rapaport

This Silicon Valley VC giant has a warning for software stocks

September 11, 2026
One of the world’s largest venture capital firms says investors are underestimating the carnage artificial intelligence will create for software companies, warning their pivots towards AI are likely just marketing.
Read Transcript

One of the world’s largest venture capital firms says investors are underestimating the carnage artificial intelligence will create for software companies, warning their pivots towards AI are likely just marketing.

Lightspeed Venture Partners partner Isaac Kim said software investors were changing their narratives to justify support for companies clearly being disrupted by sophisticated AI tools. He said his firm, which oversees a portfolio worth about $70 billion, was now shunning traditional software businesses in funding rounds.

Isaac Kim, partner of Lightspeed Venture Partners, says investors are underestimating product disruption, as the $70b fund pivots capital away from legacy tech. 

“When AI [first] came out, a lot of software investors were like, ‘Don’t look over there, don’t worry about it,’” said Kim, who will be a headline speaker at the Sohn Hearts & Minds investor conference in Queenstown this year.

“Then the SaaSpocalypse hit, and people were on their heels and had to say, don’t worry about it; we’re going to take care of this; it’s fine; nothing is happening in our portfolio; we’re not seeing any revenue degradation or retention degradation. Now you see some good prints in the public market for software, and people are like, AI is the accelerator for software.

“Disruption takes time. If you have an entrenched customer base, they’re not necessarily going anywhere in a year or two years, but I guarantee you they’re planning to for two to three years down the line as it relates to AI.”

Over a period now known as the SaaSpocalypse, software stocks on Wall Street and the ASX were rapidly sold off earlier this year amid concerns that AI tools would reduce their growth and even replace their products. The sharp drop in valuations was widespread, pushing down the market capitalisations of companies as varied as Xero and REA Group. It also hurt the valuations of unlisted companies such as design software giant Canva.

Kim spent his formative years in private equity at Elliott Investment Management and Golden Gate Capital before joining Lightspeed in 2024. The firm is best known for its support of Anthropic, the developer behind Claude, one of the world’s most advanced AI platforms, along with start-ups such as Harvey, a legal platform, and Wiz, a cloud computing cybersecurity business that was acquired by Google this year for $US32 billion.

Lightspeed is among a growing list of venture capital firms that are no longer interested in investing in software businesses. Kim said another American private equity giant – Clayton, Dubilier & Rice – “doesn’t have a software team any more” while KKR is also reworking its team.

Last month, The Australian Financial Review reported that Airtree had told investors that it “would be remiss to pretend” AI was not hurting older start-ups, and said it was “pressure-testing whether our portfolio companies have a credible AI story, not as marketing, but as a genuine product”.

“If the answer is no, that’s a strategic gap that needs to be addressed quickly,” the Australian venture capital giant wrote to investors in May.

Asked how Lightspeed would approach older software businesses in its portfolio, Kim said it was “really hard”, and often a scramble for engineering talent that would be able to transform the company quickly.

“The talent game is really tough out there, and a lot of that talent doesn’t want to go into legacy businesses,” he said. “It’s a very tough thing to do, but you have to try to pivot, innovate, upgrade your team, get your team working on AI tooling, and you have to bring your customer base along.”

But Kim said venture capital firms were in a better position to deal with the disruption brought on by AI than other private equity firms, even as the sector faced pressure from investors to exit long-held assets.

“There are some massive private equity maturity walls coming up in the next three years,” he said. “When you have that looming, you have to either do unnatural things or get out and sell sooner. The good thing about VC is that often VC can be more patient, as long as you have the correct cash runway, and you can play for the option of being able to make that pivot.”

Kim said investors should scrutinise listed software stocks for claims they were pivoting to AI, adding that they could “obfuscate things pretty easily”.

“[Companies could] say, ‘we need to renew you’ ... you’re not going to get off in the short term of the software you bought before, but on the renewal, [they] want you to split that renewal up such that 20 per cent of it goes to a new AI product, and 80 per cent to the old product,” he said.

“All of a sudden, you split where the money’s coming from and going, and you can bolster your AI revenue. It doesn’t mean that it’s in production and being used.”

This article was originally posted by The Australian Financial Review here.

Licensed by Copyright Agency. You must not copy this work without permission.

One of the world’s largest venture capital firms says investors are underestimating the carnage artificial intelligence will create for software companies, warning their pivots towards AI are likely just marketing.

Lightspeed Venture Partners partner Isaac Kim said software investors were changing their narratives to justify support for companies clearly being disrupted by sophisticated AI tools. He said his firm, which oversees a portfolio worth about $70 billion, was now shunning traditional software businesses in funding rounds.

Isaac Kim, partner of Lightspeed Venture Partners, says investors are underestimating product disruption, as the $70b fund pivots capital away from legacy tech. 

“When AI [first] came out, a lot of software investors were like, ‘Don’t look over there, don’t worry about it,’” said Kim, who will be a headline speaker at the Sohn Hearts & Minds investor conference in Queenstown this year.

“Then the SaaSpocalypse hit, and people were on their heels and had to say, don’t worry about it; we’re going to take care of this; it’s fine; nothing is happening in our portfolio; we’re not seeing any revenue degradation or retention degradation. Now you see some good prints in the public market for software, and people are like, AI is the accelerator for software.

“Disruption takes time. If you have an entrenched customer base, they’re not necessarily going anywhere in a year or two years, but I guarantee you they’re planning to for two to three years down the line as it relates to AI.”

Over a period now known as the SaaSpocalypse, software stocks on Wall Street and the ASX were rapidly sold off earlier this year amid concerns that AI tools would reduce their growth and even replace their products. The sharp drop in valuations was widespread, pushing down the market capitalisations of companies as varied as Xero and REA Group. It also hurt the valuations of unlisted companies such as design software giant Canva.

Kim spent his formative years in private equity at Elliott Investment Management and Golden Gate Capital before joining Lightspeed in 2024. The firm is best known for its support of Anthropic, the developer behind Claude, one of the world’s most advanced AI platforms, along with start-ups such as Harvey, a legal platform, and Wiz, a cloud computing cybersecurity business that was acquired by Google this year for $US32 billion.

Lightspeed is among a growing list of venture capital firms that are no longer interested in investing in software businesses. Kim said another American private equity giant – Clayton, Dubilier & Rice – “doesn’t have a software team any more” while KKR is also reworking its team.

Last month, The Australian Financial Review reported that Airtree had told investors that it “would be remiss to pretend” AI was not hurting older start-ups, and said it was “pressure-testing whether our portfolio companies have a credible AI story, not as marketing, but as a genuine product”.

“If the answer is no, that’s a strategic gap that needs to be addressed quickly,” the Australian venture capital giant wrote to investors in May.

Asked how Lightspeed would approach older software businesses in its portfolio, Kim said it was “really hard”, and often a scramble for engineering talent that would be able to transform the company quickly.

“The talent game is really tough out there, and a lot of that talent doesn’t want to go into legacy businesses,” he said. “It’s a very tough thing to do, but you have to try to pivot, innovate, upgrade your team, get your team working on AI tooling, and you have to bring your customer base along.”

But Kim said venture capital firms were in a better position to deal with the disruption brought on by AI than other private equity firms, even as the sector faced pressure from investors to exit long-held assets.

“There are some massive private equity maturity walls coming up in the next three years,” he said. “When you have that looming, you have to either do unnatural things or get out and sell sooner. The good thing about VC is that often VC can be more patient, as long as you have the correct cash runway, and you can play for the option of being able to make that pivot.”

Kim said investors should scrutinise listed software stocks for claims they were pivoting to AI, adding that they could “obfuscate things pretty easily”.

“[Companies could] say, ‘we need to renew you’ ... you’re not going to get off in the short term of the software you bought before, but on the renewal, [they] want you to split that renewal up such that 20 per cent of it goes to a new AI product, and 80 per cent to the old product,” he said.

“All of a sudden, you split where the money’s coming from and going, and you can bolster your AI revenue. It doesn’t mean that it’s in production and being used.”

This article was originally posted by The Australian Financial Review here.

Licensed by Copyright Agency. You must not copy this work without permission.

Disclaimer: This material has been prepared by Australian Financial Review, published on September 11, 2026. HM1 is not responsible for the content of linked websites or content prepared by third party. The inclusion of these links and third-party content does not in any way imply any form of endorsement by HM1 of the products or services provided by persons or organisations who are responsible for the linked websites and third-party content. This information is for general information only and does not consider the objectives, financial situation or needs of any person. Before making an investment decision, you should read the relevant disclosure document (if appropriate) and seek professional advice to determine whether the investment and information is suitable for you.

facebook
linkedin
All
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
November 20, 2024

Trump unifies top investors in decade-long bullish outlook for US

Nick Moakes, CIO of the $72 billion Wellcome Trust, told the conference that too many investors were banking on a return to the ultra-low interest rates that prevailed over the past decade.

Read More
Wall Street legend Howard Marks told the Sohn event that US exceptionalism would endure. Picture: Ben SearcyWall Street legend Howard Marks told the Sohn event that US exceptionalism would endure. Picture: Ben SearcyWall Street legend Howard Marks told the Sohn event that US exceptionalism would endure. Picture: Ben SearcyWall Street legend Howard Marks told the Sohn event that US exceptionalism would endure. Picture: Ben Searcy
November 17, 2024

Is anyone brave or stupid enough to bet against America?

Stock pickers have been punished for betting against the US. The choice between consensus and contrarianism on American exceptionalism is now harder than ever.

Read More
Ellerston Capital's Chris Kourtis says things will improve at embattled fund manager Perpetual. Picture: Ben Searcy PhotographyEllerston Capital's Chris Kourtis says things will improve at embattled fund manager Perpetual. Picture: Ben Searcy PhotographyEllerston Capital's Chris Kourtis says things will improve at embattled fund manager Perpetual. Picture: Ben Searcy PhotographyEllerston Capital's Chris Kourtis says things will improve at embattled fund manager Perpetual. Picture: Ben Searcy Photography
November 15, 2024

Eleven stock tips from Sohn to get you through 2025

“There’s no finer place for the finance festival than in the festival city,” said Matthew Grounds. He, along with fellow Barrenjoey co-executive chairman Guy Fowler and investor Gary Weiss, is one of Sohn’s driving forces.

Read More
November 15, 2024

Howard Marks and Sohn’s big stars reveal seven rules for investing

Among the stock picks and stunts at the Sohh Hearts & Minds event, Howard Marks and Nick Moakes provided investors with long-term rules for playing markets.

Read More
November 15, 2024

Sohn ASX stock pick: Ellerston Capital’s Chris Kourtis backs Perpetual

Chris Kourtis has put his biggest bet on embattled Perpetual – picking one of the most hated stocks on the ASX – that he believes will soon be the ‘cheapest listed asset manager of scale in the universe’.

Read More
November 15, 2024

Sohn investors position for bullish but bumpy Trump ride

Australia and the rest of the world must adjust to a new Trump presidency that will deliver an expected bull market but also disruption, with the leader in waiting prepared to “create pain” to get his way.

Read More
November 15, 2024

Sohn stock picker experts name best shares to invest in for year ahead

‍Don’t overlook down and out silver miners, legacy skincare brands ready for a revival and a big financial company suffering from a severe case of shareholder wealth destruction.

Read More
November 15, 2024

Sohn: NYSE-listed Estee Lauder’s Northcape Capital pick

Northcape Capital’s Fleur Wright this gives a rare opportunity to buy a high quality company at an attractive price.

Read More
November 6, 2024

Why this New York hedge fund manager sees opportunity in European stocks

Influential New York-hedge fund manager Ricky Sandler will turn to Europe for his next stock pick.

Read More
November 5, 2024

Antipodes’ Ross says short-term wealth hinges on US election

The portfolio manager says defensive stocks pose a bigger risk than the magnificent seven for investors that are overexposed to the American sharemarket.

Read More
November 5, 2024

Concentration risk key for investors: Antipodes Partners’ Vihari Ross

The concentration risk in global stock indexes that has built up during the strong rise over the past year must now be a key consideration for global investors, according to Vihari Ross.

Read More
November 5, 2024

The fundie betting big on China – with help from AI

Mr Mehta is sticking to his well-worn strategy: he’s hunting for companies across Asia that aren’t battling intense competition and have management teams focused on costs, cash generation and high payouts to shareholders.

Read More
Beeneet Kothari is ready to shock the Sohn Hearts & Minds event.Beeneet Kothari is ready to shock the Sohn Hearts & Minds event.Beeneet Kothari is ready to shock the Sohn Hearts & Minds event.Beeneet Kothari is ready to shock the Sohn Hearts & Minds event.
October 29, 2024

Why this fundie wants you to ‘wince’ at his stock picks

When fund managers come to pitch their favourite stock at the annual Sohn Hearts & Minds conference, there are two ways they can go: they can play it safe, or they can take a risk and shock the room.

Read More
October 27, 2024

IFM Investors’ Rikki Bannan backs small cap investments to rebound after mixed performance

IFM Investors executive director Rikki Bannan believes this year could be a good one to invest in some select small cap stocks.

Read More
October 22, 2024

Meet the 2024 Conference Managers

Following a global search, the Conference Fund Manager Selection Committee is pleased to share eleven new managers for 2024.

Read More
December 10, 2024

Professor Jane Butler: Sparking Hope for Spinal Cord Injuries

In this episode of the Hearts & Minds Podcast, we sit down with Professor Jane Butler to discuss her groundbreaking research into spinal cord injuries.

Read More
impact-podcasts
September 24, 2024

Asian Market Potential with Tom Naughton of Prusik

CIO Charlie Lanchester sits down with Tom Naughton, CIO of Prusik Investment Mgmt. Tom shares his investment philosophy, the opportunities and challenges in Asian markets, and how his 2023 conference stock pick, Swire Pacific (0019.HK), delivered an impressive 30% return.

Read More
investing
September 4, 2024

Building Hearts and Minds with Co-Founders Matthew Grounds and Guy Fowler

In this episode, co-founders Matthew Grounds AM and Guy Fowler OAM discuss their journey in building Hearts & Minds and its philanthropic model that has donated over $70 million to medical research.

Read More
investing
June 25, 2024

Navigating the Resource Sector with Jeremy Bond of Terra Capital

In this episode, we chat with Jeremy Bond, Founder of Terra Capital and HM1 Conference Fund Manager. Tune in for insights into the world of resource investments and the exciting opportunities that lie ahead.

Read More
investing
June 11, 2024

Prof. Nadia Badawi on Cerebral Palsy Breakthroughs and Neonatal Care

Dive deep into the groundbreaking work of Professor Nadia Badawi, an internationally recognised neonatologist and expert in Cerebral Palsy.

Read More
impact-podcasts
May 28, 2024

Investment Insights: Rikki Bannan on Top Picks and Trends

Join us for an engaging episode featuring Rikki Bannan, Portfolio Manager of IFM Investors and HM1 Conference Fund Manager. This episode explores Rikki's career journey, investment strategies, and her 2023 conference stock pick, Telix Pharmaceuticals (ASX.TLX).

Read More
investing
December 6, 2023

Peter Cooper talks building and instilling a culture of humility and excellence

In this episode, our guest is the renowned investor, Peter Cooper, founder and Chief Investment Officer of Cooper Investors (Core Fund Manager). A founding supporter of Hearts and Minds, Peter is a staunch advocate of our model and its philanthropic purpose, actively engaging in every facet of Hearts and Minds.

Read More
investing
November 28, 2023

Jun Bei Liu on her high conviction investment strategy

In this episode, HM1 Chief Investment Officer Charlie Lanchester is joined by Jun Bei Liu. Jun Bei is the Portfolio Manager of Tribeca’s Alpha Plus Fund and since taking over managing the Fund, she has quadrupled AUM.

Read More
investing
November 21, 2023

The world of rare genetic disease research

In this episode, we speak to Associate Professor Gina Ravenscroft. Gina is an Associate Professor in Neurogenetics at the Harry Perkins Institute of Medical Research in Perth. Her research interests are in rare genetic diseases, with a particular focus on neurogenetic diseases in babies and children.

Read More
impact-podcasts
November 14, 2023

Learn what makes a high conviction investment and how to avoid short-term noise

In this episode, our Core Fund Manager Magellan shares how they select top stocks for the HM1 portfolio.

Read More
investing
November 7, 2023

Delve into the world of kids critical care and trauma research

In thie episode, we are joined by Dr. Marino Festa, or Rino for short. He is the Medical Director of NSW Kids ECMO Referral Service and a senior specialist in Paediatric Intensive Care at Children’s Hospital at Westmead.

Read More
impact-podcasts
October 31, 2023

Where Regal's Phil King is searching for opportunities

HM1's CIO, Charlie Lanchester, talks to Phil King of Regal Funds about his passion for stocks, his ongoing search for opportunities, and some of the sectors he’s excited by right now. Phil King of Regal Funds, has been a tremendous supporter of Hearts & Minds since the beginning.

Read More
investing
October 24, 2023

Preventing recurrent miscarriages and birth defects

In this episode, CEO Paul Rayson is joined by renowned biomedical researcher Professor Sally Dunwoodie. Prof. Dunwoodie's groundbreaking work has revolutionised clinical practices and enabled genetic diagnostic tests worldwide. In 2017, her team achieved a double breakthrough with the potential to prevent recurrent miscarriages and various birth defects.

Read More
impact-podcasts
October 17, 2023

Nick Griffin on how he finds global winners

In this episode, CIO Charlie Lanchester chats with Nick Griffin, the founding partner and CIO of Munro Partners, one of HM1's Core Fund Managers. They go over his career to date, reflect on the lessons he’s learned, and trace the decisions that led to him starting Munro.

Read More
investing
October 10, 2023

How A/Prof Matt Call is teaching our body to kill cancer

In this episode, CEO Paul Rayson is joined by WEHI’s Associate Professor Matt Call to talk about his incredible research. Matt’s team teaches and trains the body's own immune cells to target and kill cancer cells.

Read More
impact-podcasts

No results found.

Please try a different search keyword or filter.