Venture capital has always been about seeking innovation and new opportunities. Traditionally, venture capitalists have invested in early-stage startups that disrupt existing industries or create entirely new business models. However, some venture capital firms are now rethinking their strategies. Instead of funding startups, they are acquiring established businesses such as call centers, accounting firms, and other professional service providers, optimizing and automating them with artificial intelligence (AI) to deliver more efficient services to a broader customer base.
A new strategy: merging mature businesses with AI
This approach resembles private equity mergers and is being actively adopted by firms like General Catalyst, Thrive Capital, and individual venture capitalist Elad Gil. General Catalyst describes this strategy as a “new asset class,” having already backed seven such companies. One example is Long Lake, a startup that consolidates homeowners’ associations to streamline and enhance community management. According to PitchBook, Long Lake, despite being less than two years old, has raised $670 million in funding.
TechCrunch reports that several venture capital organizations are considering testing this investment model. Among them is Khosla Ventures, a firm renowned for early investments in high-risk, unproven technologies.
Khosla Ventures’ cautious approach
Samir Kaul, a managing partner at Khosla Ventures, told TechCrunch that the firm is carefully exploring these opportunities: “We are thoroughly evaluating such projects. The companies we invest in should have a low risk of financial loss.”
Kaul emphasized that Khosla Ventures plans to assess the profitability of this strategy through a few initial deals before allocating dedicated funds. If these early investments prove successful, the firm may partner with a private equity-style organization to assist with acquisitions, as Kaul noted, “We lack the expertise to execute this independently.”
Unexpected opportunities for AI startups
This approach not only benefits venture capitalists but also creates significant opportunities for AI startups. By integrating traditional businesses with modern technologies, AI startups gain immediate access to large, established customer bases. For instance, a venture capital firm that optimizes a call center or accounting firm with AI can provide a ready market for startups serving those industries.
Caution and responsibility
Khosla Ventures is approaching this strategy with caution. “My greatest concern is responsibly managing other people’s money,” Kaul said, stressing the firm’s commitment to maintaining high returns. To this end, Khosla Ventures plans to test this model on a small scale initially.
Future prospects
AI-driven mergers could usher in a new era for venture capital. The fact that leading firms like Khosla Ventures are experimenting in this space signals potential major shifts in the industry. If successful, this strategy could unlock new opportunities not only for venture capitalists but for the broader business ecosystem.
Prepared by Javohir Akramov
Georgetown University in Qatar
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