Why AI is a Smart Investment for Private Equity?

How artificial intelligence can drive growth, savings and value creation in portfolio companies

The AI Revolution is Here. There's a technological revolution happening that will change how every company operates. The advances in AI over the past decade have been astounding. We now have AI systems that can see, hear, speak, and even beat humans at complex games like chess and Go.

A friend posed this question to me the other day: what does this advancement in AI mean for private equity investors? My answer, in short was - AI will soon become mission critical for driving growth and competitive advantage across sectors. As a PE investor, you need to start caring about AI if you want to future-proof your portfolio.

How Can AI Create Value for PE Investors? AI can create tremendous value in several key ways:

- Revenue Growth: AI powers technologies like predictive analytics, personalized recommendations, and conversational bots which can unlock new revenue opportunities. Investing in AI could greatly accelerate growth.

- Cost Savings: Mundane tasks like data entry, customer service, and equipment monitoring can be automated using AI, resulting in lower operational costs.

- Better Decision Making: AI systems can rapidly analyze mountains of data to uncover actionable insights. This enhances due diligence and investment decision making.

- Due diligence - AI can analyze massive amounts of data to uncover key insights about target companies, improving investment decision making.

- Value creation - PE firms can build or acquire AI capabilities to improve operations, create differentiation, and drive growth in their portfolio companies post-acquisition.

- Future readiness - Incorporating AI helps position portfolio companies to succeed in an increasingly tech-driven business environment. Lagging on AI could make a company uncompetitive and prone to disruption by new market entrants.

Are You Asking the Right Questions?

When evaluating an investment target, ask critical AI questions like:

- How is the company currently using AI and machine learning?
- What potential applications of AI could drive efficiency or growth?
- How does the company’s AI talent and infrastructure compare to competitors?

Getting on the AI Train The takeaway is clear - AI adoption will become a competitive necessity. Companies that lag on AI risk getting disrupted.  PE investors have a tremendous opportunity to drive AI capabilities throughout their portfolio. The AI train is leaving the station fast, and PE investors will need to make sure their portfolio is on board!

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