Private software investment represents a significant yet often overlooked opportunity for high-net-worth investors. According to Luke Finch of HG Capital, a firm managing approximately $65 billion with over 25 years of experience, the most promising investments lie in what he describes as “boring B2B software” — the systems that power business operations behind the scenes.
These software solutions manage critical workflows, handle data, and simplify employee tasks across organizations. While they rarely make headlines, they form the backbone of modern business infrastructure.
The Hidden Value in Business-Critical Software
The most compelling investment opportunities exist in software that manages core business processes for corporate customers. Microsoft stands as the prime example – a $2 trillion company that continues to grow remarkably because its products are essential to daily business operations worldwide.
Beyond tech giants, thousands of smaller software companies create substantial value by making employees more effective and efficient while managing regulatory and compliance risks. These companies excel because software maintains records more accurately than humans can, creating a competitive advantage in increasingly regulated industries.
Current Market Opportunities
Finch identifies particularly strong investment potential in software that supports industries with expensive, highly-trained workforces:
- Legal software that reduces reliance on expanding paralegal teams
- Healthcare systems that improve hospital operational efficiency
- Financial services platforms that streamline banking processes
- Engineering software that enhances productivity for technical teams
The investment thesis becomes even stronger during periods of inflation. As Finch notes, “When inflation is surging, it’s expensive things that get more expensive. The more expensive your underlying workforce is, the more you need software right now.”
The Private Equity Advantage
While anyone can purchase shares in large public software companies like Microsoft or Adobe, these investments come with significant drawbacks. Their massive market capitalizations make them vulnerable to index-driven volatility that does not accurately reflect their stable underlying business models.
For investors seeking exposure to smaller, niche software companies with greater growth potential, private equity offers the most viable path to achieving this goal. These specialized businesses rarely appear on public markets but often deliver superior returns due to their focused business models and critical role in client operations.
Finch argues that private equity represents “a superior form of capitalism” compared to public markets. Public companies face constant volatility driven by index funds that “by definition, have to buy high and sell low and rebalance every day,” creating momentum swings that harm long-term business planning.
The Investment Profile of Private Software
The most attractive aspect of private software investments is their unique risk-reward profile. Finch describes them as combining “the predictability of a bond” with significant growth potential. These businesses generate reliable earnings and cash flow while still expanding their market presence.
This combination of stability and growth makes private software particularly appealing for investors seeking to diversify beyond traditional asset classes. While public tech stocks experience dramatic valuation swings, private software companies can focus on steady business expansion without the pressure of quarterly earnings.
For high-net-worth investors considering portfolio allocation strategies, private software offers an alternative that balances defensive characteristics with meaningful upside potential — particularly as businesses across all sectors increasingly depend on specialized software to manage costs and maintain competitive advantage.
Featured Image Credit: Photo by Tima Miroshnichenko; Pexels
