In just one day, $390 billion in market value was erased from software firms thanks to fear that AI agents can simply replace what software delivers to businesses. The average forward earnings multiple for software companies dropped from 39x to 21x as Wall Street acted on that fear.
Every major technology wave, from personal computers to mobile to now AI, reshapes how we live and work. In each wave, there are winners and losers. Long-time incumbents get disrupted and business models that looked permanent suddenly look fragile.
So what does this mean for the tens of thousands of vertical software companies that small and medium businesses rely on to run their operations?
Will the food truck owner, the CPA, the gym operator, or the home services technician vibe-code their own platform? Will a new AI-native software company emerge with a fraction of the headcount and build a better substitute? Will the end users of these products be AI agents rather than humans, requiring an entirely redesigned workflow?
Vertical software companies are the first beneficiaries of this AI wave
These companies are already a technically sophisticated group with deep category expertise. Think plumbing, fitness, retail, field services. They understand operator pain points intimately.
AI lets them build faster and more cost-effectively than ever before. And critically, they already have distribution. They can deliver AI-driven value to their customers far faster than any SMB operator is going to learn data structures, APIs, models, and prompts on their own.
Vertical software is the operating system for the SMB. It schedules, invoices, manages inventory, surfaces opportunities. It’s also the initiation point for how that business collects payments from its customers.
AI will change a lot, but in regulated spaces, it moves slower. An AI agent isn’t going to satisfy the compliance obligations of a bank anytime soon. That regulatory friction is a feature, not a bug, for vertical software companies that are already embedded in their customers’ payment flows.
What was once a revenue opportunity is now a defensive moat. As Matt Brown, early-stage investor in fintech and vertical software startups at Matrix, recently wrote: you can’t vibe-code a banking license.
At Forward, we work with financial sponsors like private equity and venture capital firms, managing a collective $145 billion in assets under management. They’re reordering priorities across their portfolios to make sure these moats get built.
Where a software company was processing payments for 20% of its customers, the mandate is now 75% or higher. Not next year, now.
The math on why is straightforward. These businesses will double revenue per customer with payments. Then double it again by delivering vertical AI solutions that solve the specific problems of their end market. They’ll also reduce engineering costs in ways that move the Rule of 40 toward something closer to a Rule of 80.
The window for building this moat is open. The question is whether your payments program is broad enough to matter when it closes.
