The big picture: Traditionally, VCs have poured money into early-stage startups, betting on unproven technology and the promise of disruption. But a new strategy has been seen taking hold recently, one that blends the playbooks of venture capital and private equity: acquiring established businesses and supercharging them with artificial intelligence.
This approach is gaining momentum among top firms like General Catalyst, Thrive Capital, and solo investor Elad Gil. Instead of funding the next big thing, these investors are buying up mature companies – such as call centers, accounting firms, and professional service providers – and using AI to automate operations, cut costs, and reach more customers. The result is a new breed of tech-enabled enterprises built on the foundations of legacy industries.
General Catalyst is at the forefront of this trend. The firm, which manages $32 billion in assets, has reorganized its business to focus on modernizing legacy organizations with AI. It has already backed seven companies using this model, including Long Lake, which acquires homeowners associations to streamline community management.
Since its founding less than two years ago, Long Lake has secured $670 million in funding and acquired about a dozen companies employing 1,400 workers, according to PitchBook. The company is now expanding to other sectors, such as human resources services, and leveraging AI to prepare board presentations.
Startups like Crete Professionals Alliance and Crescendo follow similar paths, acquiring regional accounting, professional-service, and customer-service firms and layering AI to optimize their operations.
The scale of investment in AI is unprecedented. In the first quarter of 2025 alone, global venture funding for AI reached $59.6 billion, accounting for more than half of all venture capital deployed worldwide. This surge reflects investor enthusiasm and the growing maturity and adoption of AI technologies across the business landscape.
Other venture firms are taking notice.
Khosla Ventures, renowned for backing risky, long-term technology bets, is considering the new investment model. "I think we'll look at a few of these types of opportunities," Samir Kaul, general partner at Khosla Ventures, told TechCrunch.
For AI startups, this hybrid approach could be a lifeline. By marrying old businesses with new technology, investors can give AI companies instant access to established customer bases – an advantage that can be hard to come by for young startups navigating crowded markets and long enterprise sales cycles.
"Such access would be helpful when new startups have difficulties securing customers on their own," Kaul said.
Still, caution prevails. "The companies we're looking at are very unlikely to lose money," Kaul said. "My biggest stress in life is I'm managing other people's money, and I want to make sure that I continue to be a good steward of it."
For now, the firm is only experimenting with a handful of these AI-powered acquisitions, wanting to see if the returns justify a dedicated fund. If early bets prove successful, Khosla would likely partner with a private equity-style firm for future deals. "We wouldn't do it alone, we don't have that expertise," Kaul said.
The rationale behind the trend is clear. As the startup landscape becomes increasingly saturated, finding disruptive new ventures becomes more challenging. On the other hand, mature businesses offer stable cash flows and existing infrastructure that can benefit immediately from AI integration.
This shift is also transforming the operations of venture and private equity firms. AI-driven tools are making deal sourcing, portfolio management, and risk assessment more efficient and precise. As regulatory scrutiny of AI grows and new frameworks for transparency and accountability are under discussion, firms are adapting their strategies to stay ahead.