Would you join a software fund right now?
Is software cooked or is there still alpha for funds with sharp or niche strategies?
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Sure, but probably not in traditional PE.
Tech VC is arguably the best place to be right now as an investor just given the wealth of opportunities in AI. You don’t need every AI-disruptor bet to work; a few winners can return the fund many times over. Some of the more aggressive growth shops are leaning into minority positions in AI-native companies, backing the disruptors rather than the incumbents, are also good shouts. That can be attractive, but you have to diligence the platform, not everyone marketing “AI exposure” is truly positioned there. And in minority investing, brand and sourcing reputation matter because founders are selective about who they let onto the cap table as most good startups have more capital chasing them than they need to raise.
I’d prioritize firms investing in AI-first businesses, not just paying up for incumbents or leaning primarily on inorganic growth (not that inoganic growth is a red flag, just cannot be sole driver of value). You can usually tell from how they talk about the space and whether they can point to real, tangible examples of backing AI-native companies. Traditional software PE is tougher because you’re often underwriting businesses that are the ones being attacked. Capital-agnostic platforms (I mean firms who truly invest across the board, not just say are capital-agnostic but mostly do buyouts) can also be interesting if you want exposure across stages before deciding where you want to play long term.
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Bullish on funds with a strong sourcing background- bearish on funds that just run around in banked processes. Some started out in the former camp and have outgrown it so I'd look at recent deployments.
Who do you think actually has a sourcing advantage. Would you rather be in GE than buyout right out given the sourcing nature of growth equity funds. Also wondering what you think about capital agnostic tech investors that the poster above cited that do miniority or buyout (i.e. Great Hill) or even those that are willing to consider debt deals (i.e. SilverLake or Bregal Sagemount).
I would rather be in growth equity or on the early end of majority recaps. Most tech PE firms these days can do both majority and minority structures but ideally you want to be investing in boostrapped businesses. As soon as you're in the business of recapping GE or PE it gets hard to make a buck.
This is just my personal observation but I don't know if being able to invest across the cap stack is really that that much of an advantage and can cause split focus on ICs between more equity-oriented members and debt/structured equity oriented members which results in very different valuation expectations and risk appetites. (i.e. difficulties deploying)
I'd also be very skeptical in companies and firms that market themselves as AI-first unless they're investing in vertical-specific foundational model providers. The vast vast majority of AI startups I've come across today are point solutions that probably should belong alongside a SaaS system of record solution or a core workflow solution but if you ask the public markets right now they'd suggest I'm wrong so what do I know.
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