By John Messer, Founder and Managing Partner at Copilot Capital
Pricing a software business has always been an inexact science. But in today’s market, arriving at a meaningful valuation has become even harder.
As economic headwinds persist, dealmaking is increasingly concentrated around a narrow band of top-quality businesses. Investor caution has pushed many towards businesses that tick every box, from strong management to clean ownership, a proven sales engine, and a clear AI story.
The result is fierce competition for those assets, prices pushed well beyond what the fundamentals justify, and mounting pressure on value creation from day one. For businesses that fall short of this idealised template, the businesses that are ‘imperfect’, the opposite is true. Any gap in the leadership team, any complexity in the ownership structure, any roughness in the go-to-market, and they are struggling to attract any serious interest at all, especially from private equity.
For cautious investors, any diversion from their exact investment criteria, or boxes unticked, is a risk they aren’t prepared to take. This is skewing pricing and widening the gap between the best and the rest. But the dynamic is also creating a significant blind spot, and for those willing to look past it, a significant opportunity.
The problem with chasing perfection
The instinct to pursue only the most ideal assets is understandable. In an uncertain market, reducing perceived risk is rational, but the fundamental flaw of this approach is that perfect businesses command perfect prices. When every credible investor is chasing the same deals, returns compress. The very safety that makes an asset attractive also makes it expensive, and therefore more risky.
There is also a deeper issue. The definition of a “perfect” business is narrower than most investors acknowledge. Leadership teams are rarely complete at the point of investment. Ownership structures can be complicated for legitimate historical reasons. Sales engines take time to build. A business that falls short on one of these dimensions is not necessarily a bad business. In reality, it may simply be a business that has not yet had the right support.
Rethinking what imperfection means
The more useful question is not whether a business is perfect, but whether its imperfections are fixable. That requires a different kind of diligence. It is less focused on screening out risk and instead more focused on understanding what is genuinely structural and what is addressable with the right expertise and resources.
Take leadership gaps as an example. An incomplete management team is one of the most common reasons investors walk away from an otherwise compelling business. But if a business has achieved strong growth without a CFO or a commercial leader, that is not necessarily a warning sign. It may be a sign of a resilient product and a capable founding team. The question is whether the right hire can accelerate what is already working. Investors with strong networks and genuine operating experience can often identify that candidate before a deal closes, meaning the business is ready to move immediately afterwards.
Ownership structure is another area where complexity is frequently misread as risk. A business listed on a smaller exchange, for example, may be held back by the reporting burden and short-term pressures that come with it. For an investor willing to navigate the process of taking it private, the underlying business may be significantly more valuable than the market price suggests. The complexity that deters others creates the opportunity.
The same logic applies to technology and go-to-market. A business that needs to replatform, or has yet to build out its sales function, may look unfinished. But if the product is strong and the market is there, those are execution challenges, not fundamental ones. Investors who have solved similar problems before are better placed to underwrite them with confidence.
Fair price, real value
None of this is about finding a bargain or identifying mispricing. The businesses described above still require fair prices, and in competitive situations, that means paying what the market demands. The difference is that investors who can genuinely address the imperfections are in a position to justify that price, because they can see a path to value that others cannot.
This matters for founders too. The narrative around private equity has long been shaped by a buyer’s market mentality, with investors dictating terms to businesses with no other options. The dynamic around imperfect businesses is different. Founders of these companies often have a choice, but choose partners who bring something beyond capital. They want investors who understand the gaps, have a plan to fill them, and are prepared to do the work.
When that alignment exists, everybody benefits. The founder gets to where they want to go faster than they would alone. The investor gets a realistic price and a genuine value creation story. And the business gets the resources and expertise it needs to reach its potential.
Where the returns are
The concentration of capital around perfect assets is not going to reverse quickly. If anything, as AI reshapes software markets and the bar for what constitutes a “quality” business continues to evolve, the pressure on those assets will intensify. Investors who remain anchored to that definition of quality will find themselves competing harder for returns that are increasingly hard to generate.
The more interesting question is what happens to everything else. Businesses with strong fundamentals and fixable gaps are not scarce. They are abundant. And in a market where most investors have narrowed their focus, they offer the greatest value creation potential.
That is where the returns are. Not in finding perfection, but in knowing what to do with imperfection.
