Venture capital is shifting its focus from merely selling AI tools to acquiring established companies and restructuring them around AI capabilities.
This approach, termed the AI rollup, has gained traction in the past six months, with notable transactions such as General Catalyst and Trian's $7.6 billion take-private of Janus Henderson and Long Lake Management's $6.3 billion agreement to take American Express Global Business Travel private at a 65% premium.
This strategy contrasts with traditional private equity, which has focused on financial engineering and acquiring enterprise software at high valuations. Instead, the AI rollup emphasizes growth through AI integration, targeting industries like healthcare, accounting, and construction, where software adoption has been slow.
Long Lake Management exemplifies this model, having acquired over 30 businesses and developed a proprietary AI platform called Nexus, which reportedly outperforms general-purpose AI models.
However, the venture capital model faces challenges, including the potential for lower returns compared to traditional private equity and execution risks, as venture firms typically lack the operational expertise that established private equity firms possess.
As the market evolves, the next wave of take-private deals may focus on non-tech companies, indicating a broader transformation in investment strategies