Silicon Valley’s new buyout playbook is hitting Wall Street
Venture capital is buying the path to AI transformation that enterprise software cannot deliver. Rather than selling AI tools to companies, venture firms are buying legacy companies outright and rebuilding them around AI from the inside.
This bet puts venture capitalists on the offensive and leaves traditional private capital, which spent the last cycle buying enterprise software at rock-bottom prices, on the defensive.
In Silicon Valley, this strategy is known as AI aggregation. On It has moved into public markets twice in the past six months: General Catalyst and Trian’s $7.6 billion acquisition of Janus Henderson (JHG) in December and Long Lake Management’s $6.3 billion deal in May to take American Express Global Business Travel (GBTG) private at a 65% premium.
General Catalyst managing director Madhu Namburi calls this “software as a service.” This is a version of software as a service, or SaaS, that makes software companies highly profitable because growth does not require increasing costs. AI aggregations apply the same logic to service businesses.
Startup firms have been implementing this strategy since 2023, mostly in the private market. General Catalyst, which supports Long Lake alongside Alpha Wave, has co-created nearly a dozen of these pickups.
Joshua Kushner’s Thrive Capital runs Thrive Holdings with the same model and more than $1 billion in capital. That money is recently being put to work by supporting regional accounting firms to bring together AI. Lightspeed and Andreessen Horowitz are also in the mix, but it’s still early for them. Goals share a common feature. They are in industries where software adoption is lagging: healthcare, accounting, insurance, customer service, property management, construction.
This also changes who can make these deals. Traditional private equity is built around financial engineering; taking a steady cash flow, leveraging that and squeezing margins. The AI total is shaped around growth; AI scales customer-facing teams, reinvested cash funds more acquisitions. This is a shift in the startup model, essentially applying the growth mindset to established companies. Long Lake plans to retain the companies permanently; Berkshire Hathaway.
Long Lake is the clearest example of what the bridge to effective AI deployment looks like. The three-year-old company has acquired more than 30 businesses in HOA management, construction and now corporate travel. It runs a proprietary AI platform called Nexus, tuned to the specific workflows of each industry that the leading labs weren’t initially targeting.
Alex Taubman, CEO of Long Lake, says Nexus performs five times better than general-purpose models like Claude or ChatGPT in his firm’s internal benchmarks. Beyond technology, it is claimed that owning the company and placing engineers in the company for years will make the change permanent. Many of Long Lake’s engineers came from Ramp and palantirWhere engineers work in the field with customers for months.
Traditional private equity has made the opposite claim. He spent the early 2020s buying enterprise software at top multiples on the thesis that recurring SaaS revenue was the most defensible cash flow in business. The deals included Vista acquiring Citrix, Thoma Bravo acquiring Anaplan and Coupa, and Silver Lake acquiring Qualtrics. Three years later, these companies are the ones most exposed to AI disruptions.
Recently announced partnerships between Anthropic and KarataşHellman and Friedman and Goldman Sachs – and a parallel initiative with OpenAI backed by TPG – is the answer. They bring pioneering models to portfolios that are already on the books. But this is more like a consultant’s attempt at a deployment problem. Deployment of someone else’s AI into someone else’s company by people who have neither.
Two things can go wrong for the VC model. The first is the returns. Operating companies have historically delivered returns of 100% to 200% over a long holding period, but 10x math is not what venture funds often promise. Pension funds and endowments writing checks against risk exposure may end up with something closer to private equity. The second is execution. Vista and Thoma Bravo spent decades building operating teams to run the companies they took private. Venture firms write checks to startups. Taubman’s defense: “Three years in AI is actually like thirty years pre-AI.”
The next custom receive cycle is already starting and not in the software. There are boring non-tech companies underneath.
Correction: A previous version of this story misidentified the company backing the OpenAI initiative
