NZS Capital's investment philosophy centers on identifying software companies resilient to AI-driven disruption by prioritizing those with inherent "non-zero sumness" (NZS). This strategy emphasizes businesses that generate greater value for all stakeholders, including customers, employees, and society, rather than solely benefiting themselves. This fundamental characteristic is believed to offer a stronger defense against the commoditizing effects of artificial intelligence. By carefully categorizing software based on its susceptibility to AI displacement, NZS Capital aims to construct a portfolio that is both innovative and secure in an evolving technological landscape.
The Non-Zero Sum Approach to Software Investment
NZS Capital assesses the risk of AI displacement in software by focusing on the "non-zero sumness" (NZS) of a business, meaning its capacity to create more value than it captures. This investment philosophy targets companies whose core offerings are difficult for AI to fully commoditize, distinguishing them from those with readily automatable functions. By emphasizing the net positive contributions of a software company to its ecosystem, NZS Capital aims to identify resilient businesses that can thrive even as AI technologies advance and reshape various industries. This approach ensures that their portfolio primarily consists of companies with robust value propositions that are less prone to being disrupted by emerging AI solutions.
The core of NZS Capital's strategy lies in evaluating the inherent value creation of software businesses, referred to as "non-zero sumness." This means focusing on companies that generate significant benefits for all involved parties, from customers to the broader economy, beyond simply maximizing their own profits. Such businesses are seen as less vulnerable to AI-driven commoditization because their value extends beyond simple task automation. For example, software that deeply integrates with a client's mission-critical operations, or offers solutions that require complex, nuanced human interaction, tends to exhibit high NZS characteristics. This analytical lens allows NZS Capital to identify software entities with durable competitive advantages, ensuring their investments are positioned for long-term growth and stability in an increasingly AI-dominated market.
Portfolio Structure and AI Resilience
NZS Capital's investment portfolio is intentionally structured to minimize AI-related seat risk, with a significant majority allocated to vertical market software. This type of software typically serves specialized industries and often functions as mission-critical systems, making it highly integrated and costly to replace. The firm’s limited exposure to high seat-risk businesses, accounting for less than 3% of the total portfolio, further underscores this defensive strategy. By prioritizing businesses with consumption- or take-rate-based pricing models, NZS Capital seeks to invest in companies whose revenue streams are less dependent on individual user seats and more on the actual usage or transactional volume, thereby reducing the impact of potential AI-driven workforce reductions.
In addressing the potential for AI-induced job displacement, NZS Capital has strategically aligned its portfolio to mitigate what it terms "seat risk." The bulk of its investments, roughly 70%, are directed toward vertical market software, which typically involves highly specialized applications critical to specific industries. These systems are characterized by their deep integration into customer operations, high switching costs, and relatively low impact on customer budgets, thereby making AI-native replacements unlikely. Conversely, NZS Capital maintains a minimal allocation, under 3%, to software businesses with higher seat risk, such as Workday, Atlassian, and Figma. This selective approach favors companies with consumption- or take-rate-based models, which derive revenue from usage rather than a fixed number of users, further insulating the portfolio from the adverse effects of AI on traditional seat-based licensing. This prudent diversification aims to ensure resilience in an evolving technological landscape.
