Why private equity is making deals with the AI giants
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Private equity is now in bed with the same AI giants that are decimating the industry's portfolio values, particularly the hundreds of billions of dollars invested in software.
Driving the news: Both Anthropic and OpenAI have completed their deals to form AI consulting firms that are funded by, and will initially be used by, large private equity firms.
- Anthropic announced its joint venture yesterday, while OpenAI's announcement is expected later this month.
Zoom in: The two new entities are structured quite differently, according to multiple sources:
- Anthropic: Its entity is seeded with $1.5 billion, which also serves as the new entity's de facto valuation. Anthropic is a minority shareholder, on par with lead investors like Blackstone and Hellman & Friedman.
- Other backers include Goldman Sachs, General Atlantic, Leonard Green, Apollo, GIC and Sequoia Capital.
- OpenAI: Its entity is seeded with $4 billion at a $10 billion pre-money valuation. Backers are allowed to exit after five years with a 17.5% gain guaranteed by OpenAI, but their upside is capped at a level I've not yet learned.
- Its investor roster includes around 20 firms. This includes Bain Capital and TPG, but not all of them are traditional private equity. OpenAI is investing around $500 million.
- It also may acquire forward-deployed engineering teams.
Behind the scenes: Shareholders in each entity are said to be precluded from investing in the other, although it sounds like Goldman Sachs may be in both.
- Apparently that's the benefit of being a bank both Anthropic and OpenAI want to help manage their IPO.
The bottom line: Private equity views these deals as both offensive and defensive.
- Offensive because they may be building AI-native versions of McKinsey & Co., which could produce giant investment returns.
- Defensive because PE firms know what they don't know, and bringing AI expertise in-house — or close enough — could be a needed knowledge boon for existing and future portfolio companies.
