In Episode 8, Paul Karner and Dave Mangot are joined by Dan Bender, Kirby Montgomery, and Jason Langanau from the global tech due diligence firm Code & Co. (https://www.codeandco.com/) The team breaks down how the rise of AI has fundamentally changed the diligence process for private equity investors.

The conversation shifts away from the hype of AI and dives straight into the P&L consequences of "token economics". The Code & Co. team explains why blindly throwing AI at a problem will wreck a software company's gross margins, why proprietary data is the only genuine moat left in the age of commoditized coding, and why a CTO's cultural skepticism toward AI is now considered a material investment risk.

Key Takeaways:

The Death of Zero Marginal Cost: Why the traditional SaaS model (where adding a new user costs almost nothing) is dead if your portfolio company is burning through expensive LLM tokens for every transaction.

Token Economics & P&L: How to prevent margin erosion by matching the right AI model to the right problem (e.g., using a fraction-of-the-cost model like Haiku for basic tasks instead of the most expensive models).

The Data Moat: Software development is becoming commoditized; clean, proprietary data is the only true competitive advantage that competitors cannot replicate.

The 12-Month Sell-Side Shift: Why operating partners need to shift their sell-side tech diligence left, looking at the plumbing 12 months before going to market to build a convincing narrative around AI defensibility.