VCs Use AI to Transform Mature Businesses with Roll-Up Strategy

Venture capitalists (VCs) have traditionally focused on investing in startups that leverage technology to disrupt industries or create new markets. However, a new trend is emerging where some VCs are shifting their approach from funding early-stage companies to acquiring mature businesses and optimizing them with artificial intelligence (AI).

This strategy, often compared to private equity roll-ups, involves buying established firms such as call centers, accounting firms, and professional service providers, then using AI-driven automation to improve efficiency and scale customer service. Firms like General Catalyst, Thrive Capital, and solo VC Elad Gil are pioneering this approach.

General Catalyst has branded this approach as a new asset class and has already invested in seven companies using this model. One notable example is Long Lake, a startup that acquires homeowners’ associations to streamline community management. Despite being less than two years old, Long Lake has raised $670 million in funding, signaling strong investor confidence.

Other venture firms, including Khosla Ventures, known for early bets on risky technologies, are exploring this model cautiously. Samir Kaul, a general partner at Khosla, acknowledges the potential benefits but emphasizes the importance of maintaining strong returns and managing risk carefully.

One significant advantage of this roll-up strategy is the immediate access it provides AI startups to established enterprise clients. New AI companies often struggle with long sales cycles and customer acquisition in traditional industries. By integrating AI solutions into mature businesses, VCs can create a symbiotic ecosystem where startups gain market entry and mature firms benefit from cutting-edge technology.

Khosla Ventures is currently experimenting with AI-infused roll-ups but plans to partner with private equity firms rather than building in-house acquisition teams. This collaboration could combine VC innovation with PE operational expertise to maximize value creation.

This evolving investment approach highlights a broader trend where technology and traditional business models converge. It challenges the conventional VC playbook and opens new pathways for AI adoption across industries. For AI startups, it means faster routes to scale and deeper integration with established markets.

As this strategy matures, it could redefine how venture capitalists create value and support innovation. The fusion of AI and mature business roll-ups might just be the next frontier in tech investing, blending the agility of startups with the scale of established enterprises.