Impact of Artificial Intelligence on PE
Curious to understand how AI is beginning to impact different segments of PE.
For example, our vertical software portfolio has been fairly insulated from broad AI solutions, given the level nuance and human-interaction needed in our end markets and benefitted from improved product development timelines. However, horizontal data analysis tools are beginning to experience pricing pressure from GPT-4o and open source projects. I’m sure there are other industries beyond tech e.g. marketing content creation services / call centers that have experienced issues as well.
How have your portfolio companies either benefitted from AI or have been negatively impacted by AI?
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interestingly enough, this thread has not even started. why's that?
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"AI Value Creation" - I would not be surprised if we start seeing operational teams that hire AI specialists to integrate applications into their bizops to boost margins. Haven't seen a fund yet that outright states that's their strategy but guarantee it becomes a norm over the next 2-3 years.
This will definitely happen, unless this yet another AI bubble pops before then
There's a bubble in valuations, but the tech itself is solid and the value proposition is real. There's an software dev app that just hit $17m ARR with 20 people in 3 months. There's actual value being created. Even when the valuation bubble pops that's not going to go away.
Okay? Nothing I said has to do with the quality of the underlying technology.
Yes, there is a bubble in valuations. There is also a bubble publicity, which is arguably more destructive
Right, but what I'm saying is even if the bubble "pops" that doesn't change the value prop of the tech and would have no effect on whether or not the strategy gets implemented. You said "unless" which I interpreted as meaning that if that happens then this wouldn't.
I think the risk for us (software investors) is compression in ACV when AI lowers the bar for product development / software configuration / any UX, and as a result you have more competitors competing on price. This could lead to a broader software bubble popping bc of AI
Oh 100% verticalized software is going to have a reckoning. AI gets better the more constrained the parameters are and if you're building something vertical-specific it's only a year or 2 before entire modules can be spun up with vertical-focused versions of replit, lovable, bolt, etc. (perhaps even those names). We will see a death of the "software tourist" investors and the # of "good" software funds is going to decline. I'd argue the ones best off are the operationally intensive ones that can roll up their sleeves or deploy strong consulting teams into the businesses. I'm actively trying to move away from a pure software focus into either other verticals where I can apply software/AI to drive portfolio efficiency or out into public equities for precisely this reason.
These do exist but are disguised as tech companies not traditional PE shops
I know one startup holdco doing exactly that. I've only seen it with software companies in practice though.
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