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Council Post: The Deal Of A Lifetime: Why Private Equity Companies Need To Adopt AI

Amrit Jassal is the Chief Technology Officer (CTO) and co-founder of Egnyte, a leading cloud-based collaboration and governance platform.

Generative AI is Silicon Valley’s new shining star, and private equity (PE) investments in AI startups have taken over Wall Street. However, the potential of AI for PE firms can be much more than just an investment outlay. Dealmaking within the PE industry requires significant intuitive and analytical understanding across multiple dimensions. These dimensions cut across people, products, competitive landscape and financial projections.

With its ability to analyze vast amounts of data, extract insights and automate processes, generative AI can transform PE firms’ operations, make smarter investment decisions and unlock new growth opportunities. The new foundation models also democratize the deployment of extractive techniques for large datasets. Techniques such as entity extraction can be used to extract parties within contracts and construct timelines from important dates. Q&A techniques can be used to extract key contractual obligations and information hubs can be captured within organizational networks. Beyond out-of-the-box techniques, some amount of fine-tuning can be used to increase the accuracy of this extraction.

Driving Efficiency And Profitability

Using an AI-enabled platform for data management can streamline the investment lifecycle by leveraging advanced data analytics and machine learning (ML) algorithms. Derived structures can be used to trigger automated actions for smarter routing and exception-based processing. This can help scale organizations and eliminate mundane work.

Further, various graph analysis techniques can be employed on the derived structure to better understand the information flow within organizations. Graphs can be used to capture interactions between people and relationships between different entities.

Enhancing Decision-Making

Various documents such as contracts, IP portfolios, organizational charts, financial models, business plans and market reports need to be perused and synthesized to focus on critical information. AI can leverage both abstractive and extractive techniques for this effort. Abstractive techniques can be especially useful for improving decision-making. AI can capture the most important topics and create short summaries for easier reviews and action when applied to documents and document sets.

Risk Mitigation And Compliance

AI is vital in risk management and compliance within the PE industry. AI can power conversational interfaces to seek answers to questions that are relevant to different document types. For example, it is possible to focus on potential segments such as liability clauses, payment and renewal terms to monitor compliance across portfolios.

Unlocking New Opportunities

With the advent of large language models, we can access more out-of-the-box tools. It is now possible for business owners to summarize dense numerical datasets such as financial models and generate textual and graphical summaries of complex comparative analyses across multiple deals that may encompass revenue projections, competitive landscape and business plans. This empowers PE firms to tap into new opportunities that could otherwise have remained hidden in heaps of data.

Selecting The Right Partner

AI holds tremendous potential for PE firms. However, due to its highly competitive nature, the sector requires high security and data privacy. Hence, PE firms should look at working with partners who can provide them with self-service tools designed to allow them to train the AI themselves to enhance their workflows. A partner of choice should not share one firm’s data with others using their platform or use it in foundational models that support its AI offerings.

AI For The Future?

From deal sourcing and due diligence to decision-making and risk management, AI can increase efficiency, drive profitability and unlock new opportunities. However, AI advancements should be combined with human intervention for successful integration. While AI automates processes and provides insights, human judgment remains crucial in contextualizing those results and acting by adapting strategies per evolving market dynamics.

The future of private equity is intertwined with AI’s potential, not only from an investment perspective, but also as an enabler for its successful operations.

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