The AI services transformation may be harder than VCs think
Venture capitalists have convinced themselves they’ve found the next big investing edge: using AI to wring software-like margins out of traditionally labor-intensive services businesses. The strategy involves acquiring mature professional services firms, implementing AI to automate tasks, then using the improved cash flow to roll up more companies in a virtuous cycle. Leading the charge is General Catalyst (GC), which has dedicated $1.5 billion of its latest fundraise to what it calls a “creation” strategy that’s focused on incubating AI-native software companies in specific verticals, then using those companies as acquisition vehicles to buy established firms — and their customers — in the same sectors. GC has placed bets across seven industries, from legal services to IT…
