In a recent video, Troy Kirwin, an investor partner at A16z, argues that venture capital and private equity have long been like two separate planets: VCs are in San Francisco, betting on technology, high growth, and huge TAMs; PEs are in New York, favoring stable cash flow and labor-intensive service industries. However, the rapid penetration of AI is changing all of this.

In the past, B2B startups typically expanded by targeting early adopters and then Fortune 500 companies; however, mid-market sectors such as field services, IT outsourcing, accounting, construction, and recruitment have been difficult to penetrate due to low profit margins, high labor costs, and limited IT budgets. The emergence of AI has suddenly made these industries "reinvented."

Kirwin points out that VC and PE are colliding on three paths:

1) PE funds are beginning to become channel partners for AI startups, integrating AI into their entire portfolio;

2) PE firms' portfolio pages are becoming "idea menus" for entrepreneurs;

3) VC-backed AI platform companies no longer just sell software, but acquire traditional business service companies to achieve end-to-end integration, improve profit margins, and make them AI-native.

“The VCs on the West Coast wearing Patagonia and the PEs on the East Coast wearing suits originally belonged to two different universes. But driven by AI, I believe they are rapidly converging.”