03-07-2025
AI Is Bad at Snacks
People have been worried for a while about private equity buying up every company and coming to dominate the economy. 'Private equity,' in this worry, tends to mean specifically the large private-equity firms that have their roots in doing leveraged buyouts of mature cash-flowing companies. But the fun hipster alternative is, what if venture capital buys up every company and comes to dominate the economy? Historically no one worried about that much, because historically venture capital was about making concentrated bets on small startups that might change the world, not about buying the local pest-control company or medical practice in every town in America. But that's changing. We have talked a few times about 'AI rollups,' where a venture capital firm buys a bunch of small companies, combines them, and sprinkles them with artificial intelligence.
One way to think about it is that each of PE and VC has a powerful general-purpose technology that it can apply indiscriminately to every company. PE's magic technology is leverage: You buy the local plumber or pest control company or medical practice, you put a lot of non-recourse debt on it, you get a lot of upside if it does well and limited downside if it does poorly. VC's magic technology is artificial intelligence: You buy the local plumber or pest control company or medical practice, you replace the customer-service reps and bookkeepers with AI agents, you cut costs and improve profits, and eventually you also replace the plumbers and exterminators and doctors with AI and then you really start to make money. Here's a Financial Times story about AI rollups:
