Smart Capital: Putting data to work

Sar Ruddenklau
Sar Ruddenklau
May 1, 2024
This post is part of our 2024 Market Tends Report: Smart Capital: tech and AI trends in PE operations. Download the full report for more insights into how firms are implementing emerging technology across their operations.

An example of what AI can do in the origination space, if given time to learn, is EQT’s Motherbrain. The firm has built an AI-driven system whose goal is to help EQT Ventures spot the hidden gems that no one else sees and back them early.

So far, Motherbrain has directly led to investments in 9 startups.

That may seem like a disappointing number given the total size of the firm’s portfolio. But according to Henrik Landgren, the EQT Ventures partner who took the lead on developing the system, the practical value so far has been the ability to make partners more productive by prioritizing which companies are worth spending time getting to know.

“Leveraging data has been one of our core pillars,” Landgren said in a recent interview. “We wanted to create a different fund.” The company has learned that reaping the benefits of algorithms is a journey full of detours that involve experimenting, fine-tuning, and adaptation to achieve the promised efficiencies and insights.

“Probably even more important has been the internal discipline of how we work with the platform in our day-to-day,” Landgren said. “And that has led us to be able to use the AI to build much better predictive models.”

Ryan Lanpher, a Partner in Permira’s technology team, suggests the idea that AI is falling short of expectations is too harsh. “This is going to be a very long game and we are in the early days of the adoption cycle,” he told Private Equity Wire. “Today in the portfolio, the single biggest inhibitor to growth are legal and security concerns as regulatory frameworks remain embryonic – we expect to see significant adoption over the next 12-18 months.”

As Bill Maris, former managing partner at Google Ventures, once said: “when you have access to the world’s largest datasets … it would be foolish to just go out and make gut investments.”

Another example of AI being put to work in the origination space is Jolt Capital – a deep-tech focused firm that manages over $600m in assets. One of the firm’s Managing Partners, Guillaume Girard, explained in a recent video interview. “Around 10 years ago, LPs started asking us how big the growth tech marketplace really was. The simple place to look was Google, but that had its limitations for scaling up.”

“We decided to create our own search and aggregation tool, which has approximately 3.8 million companies in the database,” he continues. “It automatically searches the web and gathers companies that meet our criteria in terms of size and business model. It also pulls from the patent database. The result is that at the click of a button, I have all the information I need about a company’s board, its patents and competitive landscape, its financials, and the extent to which it’s available. We can then add more intelligence to this.”

More than half of the companies surfaced by the system are of genuine interest, Girard says – a hit rate that can’t be taken for granted. “Every time I speak to a company, I enrich the database – not just with what I liked but, just as importantly, what I didn’t like about it. And the machine continues to use these inputs to learn what we’re really looking for.”

Origination aside, the tool acts as a single source of truth for all data on companies — including in the post-deal phase — acting as a productivity tool and what Girard describes as the “backbone of our organization.” Only AI can contextualize the countless bytes of unstructured data from multiple sources — some in PDFs, some in databases and some in spreadsheets — in a tiny fraction of the time it would take a human analyst to even organize it.

Larger firms may have an edge with more digital talent and innovative resources at their disposal – such as Motherbrain and Blackstone’s risk-management platform.

Blackstone has been building cloud and data science capabilities for years, and it’s used the tech to supercharge its real estate and private equity businesses. Now, the PE giant is leveraging AI to access real-time and continuous data about the economy at-large and geopolitical events to improve how it forecasts the impact of these market events on insurers’ portfolios. Blackstone manages some $192 billion of assets for insurers, making up almost one-fifth of its total $1 trillion assets under management.

“The biggest use of AI right now inside of BXCI, the credit and insurance business, is focused on a risk-management platform for our insurance business,” John Stecher, Blackstone’s chief technology officer, told Business Insider.

Stecher explains that one platform allows Blackstone to simulate the great financial crisis, the recent regional banking crisis, or interest rates going up 10%. Then, portfolio management teams can see the impact on the underlying assets in insurers’ portfolios and how that affects returns.

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