Private Equity Edition ·
PE Is AI's Trojan Horse
Private equity has always had one defining advantage: capital.
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Hi, I’m Lily. I created this PE edition of the AI Dispatch for our growing community of thousands of private equity leaders and portfolio company operators navigating AI implementation.
This week’s theme: Capital isn't the edge anymore.
Private equity has always had one defining advantage: capital. This week's issue argues it no longer is, and that PE itself has become the mechanism through which AI's next phase spreads. That's the Trojan Horse in the title: OpenAI and Anthropic aren't knocking on the doors of 500 enterprises individually, but rather negotiating with the firms that own those enterprises. Because PE gives AI the fastest, most structurally enforced path into the corporate world that exists. Board control. IRR pressure. Ticking clocks. What takes a typical enterprise five years, PE compresses into eighteen months.
What GPs Are Whispering About
Forbes: OpenAI vs Anthropic Race for PE
OpenAI and Anthropic are racing to lock in private equity as their primary enterprise distribution channel, and the terms are escalating fast. OpenAI is offering PE firms a 17.5% guaranteed return and early model access through a $10B joint venture anchored by TPG, with Advent International, Bain Capital, and Brookfield as co-founders. Anthropic is pursuing a structurally similar arrangement with Blackstone, Hellman & Friedman, and Permira, but without the financial guarantee. The calculus for PE is straightforward: embedding AI across portfolio companies at scale, with implementation support baked in, compresses what would otherwise be company-by-company sales cycles. Not everyone is sold: Thoma Bravo opted out, and several large PE firms noted they already have direct AI access without committing capital. Read more →
Bloomberg Law: PE Builds AI-Native Law Firms
Private equity is using AI to build entirely new competitors to entrenched industries. Norm Law, a two-month-old AI-native legal platform backed by Bain Capital, Blackstone, and Vanguard, recruited former Sidley Austin executive committee chair Mike Schmidtberger as its chairman, a signal that serious legal talent is following PE capital into the AI-native model. The strategic thesis: rather than layering AI onto legacy law firms, external capital is funding firms built from the ground up around AI delivery, pricing, and workflow. Arizona's Alternative Business Structure rules opened the regulatory door; PE walked through it. For GPs, the implication extends beyond legal services, this is the same pattern likely to emerge in any professional services sector where industrial, repeatable work is bundled with high-value judgment work. Read more →
FTI: AI PE Alpha Tier Pulls Ahead
FTI Consulting's 2026 Private Equity AI Radar, drawn from 200 senior PE fund and operating leaders, finds the industry at an inflection point: AI is delivering, but unevenly. 95% of funds with AI in production report results meeting/exceeding their original business cases, yet 43% of portfolio companies remain in exploration/non-use stages, leaving substantial value on the table. Revenue acceleration has overtaken cost reduction as the top AI priority (41% vs. 24%), with pricing optimization and sales productivity leading portco deployments. Talent is the primary bottleneck: 35% cite AI skills shortage as the top barrier, and 68% name hiring as the primary fix. The most consequential finding: a distinct AI PE Alpha tier is emerging, defined not by investment levels but by governance discipline, lifecycle integration, and execution consistency across portfolios. Read the full report here →
Portfolio Gold
Every week, we’ll bring you a new, real-world example of how targeted AI deployments within portfolios are solving persistent business challenges.
Avalara Builds Agentic AI for Global Tax Automation
Company: Avalara (Vista Equity Partners portco), a cloud-based tax compliance automation platform serving 43,000+ businesses across 75+ countries.
Problem: Global tax compliance is a moving target: jurisdiction-specific rules and mounting documentation demands placing time-consuming burdens on finance teams. Internally, Avalara’s vector-based AI models for customer support hit a “Precision Paradox”: as accuracy improved, user tolerance for errors dropped, making probabilistic outputs unacceptable for tax applications.
Solution: Avalara launched a multi-pronged AI transformation across its platform:
Automated Tariff Code Classification (Oct 2024): Using natural language processing to classify large product catalogs in near-real time.
Avi for Tax Research (Jul 2025): A conversational AI assistant trained on Avalara’s compliance content libraries, delivering citation-backed answers to complex tax queries in seconds.
Agentic Tax and Compliance / ALFA Framework (Sep 2025): Autonomous AI agents embedded directly into ERPs. These agents calculate sales tax, directly file returns, know how to validate exemption certificates, and manage notices across 190+ countries.
DOM GraphRAG for Customer Support: A knowledge graph model achieving 100% precision in content mapping, creating a “Content as a Service” architecture.
Results:
65% faster sales rep response time using genAI in sales workflows
100% precision in content mapping for customer support via GraphRAG
15-millisecond average response times across compliance queries
1,400+ integrations with ecommerce, ERP, and POS systems
Why This Worked:
Avalara redesigned operations around what AI makes achievable. By building ALFA as a proprietary framework, this portco ensured regulatory accuracy and auditability. Cross-functional collaboration between content, engineering, and knowledge management teams from the start ensured critical requirements were built into every solution.
Lily’s Recommendation Corner
Lessons Learned, Exits Reimagined: PE's 2026 Playbook with Kyle Bethancourt and Eliot Kerlin
In this episode of BDO Private Equity PErspectives, Kyle Bethancourt, Co-Founder and Managing Partner at Sallyport Investments, and Eliot Kerlin, Co-Founder and Managing Partner at Broadwing Capital, discuss how AI is being deployed inside PE firms and across their portcos, creative exit pathways as long holding periods persist, and the biggest challenges and opportunities ahead; from deal selectivity and leverage discipline to an increasingly active M&A environment. Listen here →
Lily’s Closing Thoughts
The Trojan Horse has already entered the gate. The question for GPs now is whether they're the ones holding the reins or simply along for the ride. Capital got you into the room. Architecture determines what you build once you're there. The firms defining the Alpha Tier aren't the biggest spenders. They're the most deliberate builders, and in this cycle, that distinction is everything.
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