Welcome back to another edition of The Wise Exit newsletter. Last week, our team spent two days at Ideas Fest in London, where we helped run the Exit Lounge alongside our friends at The Grafter, two full days of content dedicated to helping founders get ready for an eventual exit. This week, we're covering:

Let's get to it.

AI Isn't Changing Your Valuation. Your Financials Are.

I was on a panel last week specifically about AI's impact on valuations, and one thing became clear fast. A lot of founders think being "AI-first" is worth something on its own. It's not.

We're not seeing AI companies in the lower middle market get a premium multiple just because they call themselves an AI company. The fundamentals still rule the day. Buyers are still asking the same questions they always have. What are your earnings? How durable are your cash flows? What's your margin? AI doesn't change any of that math.

What actually matters is whether AI shows up in those numbers. If you're delivering faster or your margins are better because you're more efficient, that's real, and it's provable. You can pull your own numbers from before and after you started using AI and compare margins, growth, and asset balances. If there's a real story there, it holds up. If there isn't, no pitch deck will convince a buyer otherwise.

One of the clearest examples of this is founder dependency. If your business runs on knowledge that only lives in your head, AI can actually help institutionalize that knowledge and make it transferable to someone else. That's a real, tangible thing a buyer will pay for.

A lot of founders are cutting costs with AI and expecting an instant valuation bump. If you laid off a bunch of people last quarter and your margins spiked, that's not automatically good news to a buyer. Their next question is going to be who you cut, whether your customers are still being taken care of, and whether your product is still being maintained. A short-term margin spike isn't the same as a durable, believable story.

Founders are also using AI to build out ambitious growth projections, and it's convincing them their story is airtight. The problem is, it's convincing thousands of other founders their story is airtight too. Buyers have seen every version of this pitch. They heavily discount hockey stick projections no matter how good the AI-generated deck looks, because revenue going up while costs stay flat is a red flag, not a growth story.

If your forecast leans on a hockey stick, run this exercise. Assume every offer you get is structured as 100% earnout, with zero cash up front, entirely dependent on you actually hitting that number. How confident are you in that future? Because that's exactly how confident a buyer is going to be, too.

1️⃣ If I compare my numbers from before and after adopting AI, does my margin or growth actually reflect it?

2️⃣ Am I calling myself "AI-first" without anything in my financials to back that up?

3️⃣ If I recently cut costs using AI, can I explain what happened to my customers and my product quality?

4️⃣ Would my growth story survive being offered as 100% earnout with no cash up front?

5️⃣ Have I or my team uploaded any sensitive financial data into a public AI tool without thinking through who else could see it?

☑️ Get honest about your deal size: If you're approaching $20 million or more in enterprise value, start researching what a sell-side Q of E actually looks like for a business your size.

☑️ Talk to your current accountant about gaps: Ask directly whether your books would hold up to an outside CPA firm's scrutiny. If the answer is uncertain, that's worth addressing now, not during diligence.

☑️ Decide: offense or defense: If you're heading toward a sale in the next 12 to 18 months, decide now whether you want to walk in prepared or wait to react to what a buyer's team finds.

That's all for this week. AI can genuinely make your business more valuable. But it only counts if it shows up in the numbers, not just in the pitch.

While we were at Ideas Fest, we put together a special set of offerings for attendees. We're opening that same access up to Wise Exit subscribers too, even if you weren't there in person. You can check it out here: offers.exitwise.com/ideasfest

If you want to talk through what your AI story actually looks like to a buyer, reply to this email or email me directly at [email protected].

Talk next week,

Brian Dukes

Managing Partner at Exitwise