Are Growth Buyouts Venture? You’re Asking The Wrong Question

• Much ink has been spilled debating the pros and cons of growth buyouts (1,2,3,4 etc.), is this venture or not? blah blah blah
• But for the median VC it’s probably the wrong question. Your IC isn’t underwriting this and nobody wants to fight to get your LPA amended. Best retreat to Harmonic and write more outbounds to AI Stealth co’s with an option on infinity?
• The reality is any investment strategy which can repeatedly generate a high teens IRR and show a viable path to liquidity in 5-7 years will have LPs buying and thus a new asset class is born. If that’s venture, PE or GBOs it’s just semantics.
• Likewise, the hard pivot from B2B SaaS founder to barbarian at the gate is alluring, scale with non-dilutive capital, free cash flow?! But unless you’re an extremely rare team traversing engineering, change management, financing etc. nobody’s cutting that cheque
• What is clear from speaking to operators and investors – this is happening. In many verticals, software and AI are creating enough tech alpha to have real operating leverage beyond ‘professionalisation’ and centralising cost. As software commoditises and AI capabilities improve, has a race to aggregate real-world assets begun?
• But with many market participants left sitting on their hands, how can one play this theme? I have 2 thoughts

Empower the Empire

• Won’t consolidators build these capabilities themselves? Citadel can hire great quants, why can’t KKR just hire cracked devs? Nuanced, but in short: mindset, holding periods & target size temper the old guard. Perhaps Bending Spoons is a bellwether for what might come next?
• But forget tech hubris, these are smart, seriously competitive people who will react to changing market conditions. And outsourcing to agencies already happens, for instance, insurance brokerage consolidator Ardonagh ships its platform tech development to Indian IT services provider Mphasis. Their UK sub did £57m revenue at c.12% GM in FY24. Interesting, but you want to raise from Index, right?
• Well Palantir turned consulting into a 80% gross margin business trading at a higher NTM revenue multiple than Figma. We’re starting to see businesses like Fractional AI (Travis May), Tomoro AI (Accenture alum), Wovenlight (Quantumblack alum), Northslope (Palantir alum) and even insiders from A16Z emerging to attack the opportunity to facilitate AI tech parity with disruptors
• Another expression of this might be more verticalised. Take ZIRP darling Vise, which has now redirected towards a manifesto of empowering RIA consolidators. Can these markets be large enough? There are whispers of back offices from incumbents getting carved off as the foundations for AI native BPOs then serving the rest as a back-office-as-a-service

Arm the Rebels

• So you play this all out, the empire descends, a world of scaled homogeny? Or perhaps more of the same, after all the UK is already one of the most heavily private equitised nations on earth. Yes, comp authorities start getting interested, but more interestingly how does a world of increased consolidation sit in an AI future?
• Well AI likely becomes a driver of inequality, the best get better. Simultaneously the barriers to creating new businesses decrease. The result? A bifurcation:
  • The biggest businesses / consolidators get bigger
  • The most capable, now augmented, are empowered to start their own thing maximising value capture from their AI leverage
• So how does one arm the rebels?
  • Vertical software platforms like Slice, Odeko, Xometry, Understory are enabling existing independentsthrough a combination of lead generation, supply chain, financing and admin workflow improvements. Slice has essentially recreated the Dominoes franchise infrastructure & offers it to independents
  • Others focus more on enabling net new business creation, also layering in education/training and operations playbooks to decrease the friction of going independent, e.g. Handly, Moxie, Grow Therapy, Fora with some going further to franchise their own atomic units, e.g. Savvy, Isembard, Craftwork. Does the next unicorn look more like Specsavers, the $4bn JV phenom? If franchises can achieve 3-5x the take on industry spend relative to classic V SaaS, could more vertical markets be venture viable in Europe?
• In a world of infinite, expendable AI labour it’s never been easier to aggregate fragmented demand. The obvious opportunity is in providing independents price parity with consolidators on key COGS – GPOs can be pretty nice business models. Rhyming patterns may appear in energy, compute, pharma etc
• We’re witnessing AI-enabled asset aggregation as a theme. So who are you building for? If any of these themes resonate I’d love to chat, lots more thoughts. Jamie@triplepoint.vc

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