The AI panic in software investing isn't about AI replacing software — it's about AI replacing *bad* software.
The Summary
- Monroe Capital's CEO Ted Koenig argues the real AI risk in software is misdiagnosed — AI won't destroy the category, it'll split winners from losers faster than VCs can redeploy capital.
- Anxiety in private credit has eased, suggesting smart money sees opportunity where others see crisis.
- The implication: software companies with defensible moats will weaponize AI; those built on information asymmetry will vanish.
The Signal
Koenig's take cuts through the binary thinking that's paralyzed software investors for the past 18 months. The question isn't "will AI kill software?" It's "which software companies are building on sand?"
AI will make select software better, Koenig told Bloomberg. Not all software. Select. That word matters. The software that survives — and compounds — will be the stuff that owns a workflow, a dataset, or a customer relationship that AI amplifies rather than replaces.
"The real risk isn't AI. It's misunderstanding what your software actually does."
Think about it in layers:
- Layer 1: Pure information retrieval tools. Dead. AI does this natively now.
- Layer 2: Workflow automation built on rules. Vulnerable. Agents will eat this for breakfast.
- Layer 3: Software that owns the customer, the integration points, and the trust. Durable. AI makes it stickier.
The private credit angle here is the tell. Monroe Capital didn't build a $13 billion middle-market lending platform by chasing hype. When Koenig says anxiety has dropped in private credit, he's signaling that capital allocators who actually read balance sheets have done the math. They're not fleeing software debt. They're repricing it based on which companies have real moats.
The Implication
If you're building software in 2026, the litmus test is simple: does AI make your product 10x better, or does it make your product unnecessary? If your answer involves explaining why your 47-feature dashboard is "too complex for AI to replicate," start updating your LinkedIn.
For investors, this is the sorting hat moment. The next 24 months will separate software companies with compounding advantages from those that were just renting attention. Watch where the private credit flows. That's where the grown-ups think the real value compounds.