Thanks Kathryn and Jimmy - this has been on my mind a lot recently. A couple of random questions that I find myself pondering:
- "Superior AI systems will eventually come for your business"... if "good enough" AI systems haven't already. If a company has already adopted basic AI tools (e.g. via AI assistants embedded in their existing SCM, ERP, CRM, etc software) is there enough opportunity left to make this a good investment? Alternately, is it a good signal that the acquisition is a good cultural fit for further AI transformation.
- How will investors and AI vendors compete to capture value at these acquisitions? Presumably, the rolled-up company paying for an AI to reduce cost or scale various business functions will be a more effective use of capital for than (e.g.) ramping hiring for the foreseeable future, but might you get a better return by just investing in the AI vendor? Related: thediff.co has great posts on the theme of "software and private equity competing to eat the world", with some entries on roll-ups like Bowlero and SW providers like ServiceTitan.
- More generally, I wonder if the execution risk is worth it for investors not already executing on an operational improvement model. This (Verdad piece)[https://verdadcap.com/archive/private-equity-operational-improvements] and this (Tidal Wave piece)[https://newsletter.tidalwaveresearch.com/p/private-equitys-sbc-opportunity] suggest that in general, claims of margin expansion from operational improvements should be taken with a grain of salt. Admittedly, this may not apply as well to industry roll-ups, but maybe it should encourage some conservativeness in investors' assumptions.
I don't mean to sound skeptical - I'm actually very excited about the use of AI in this space, for everything from deal sourcing to decision making to scaling sales and operations. Exciting times!
Thanks Kathryn and Jimmy - this has been on my mind a lot recently. A couple of random questions that I find myself pondering:
- "Superior AI systems will eventually come for your business"... if "good enough" AI systems haven't already. If a company has already adopted basic AI tools (e.g. via AI assistants embedded in their existing SCM, ERP, CRM, etc software) is there enough opportunity left to make this a good investment? Alternately, is it a good signal that the acquisition is a good cultural fit for further AI transformation.
- How will investors and AI vendors compete to capture value at these acquisitions? Presumably, the rolled-up company paying for an AI to reduce cost or scale various business functions will be a more effective use of capital for than (e.g.) ramping hiring for the foreseeable future, but might you get a better return by just investing in the AI vendor? Related: thediff.co has great posts on the theme of "software and private equity competing to eat the world", with some entries on roll-ups like Bowlero and SW providers like ServiceTitan.
- More generally, I wonder if the execution risk is worth it for investors not already executing on an operational improvement model. This (Verdad piece)[https://verdadcap.com/archive/private-equity-operational-improvements] and this (Tidal Wave piece)[https://newsletter.tidalwaveresearch.com/p/private-equitys-sbc-opportunity] suggest that in general, claims of margin expansion from operational improvements should be taken with a grain of salt. Admittedly, this may not apply as well to industry roll-ups, but maybe it should encourage some conservativeness in investors' assumptions.
I don't mean to sound skeptical - I'm actually very excited about the use of AI in this space, for everything from deal sourcing to decision making to scaling sales and operations. Exciting times!