Real estate firms pivot to energy development amid booming data center demand
Brendan Wallace has a lot on his mind lately. Wallace is the co-founder of Fifth Wall Ventures, a nine-year-old proptech venture firm with $3.2 billion in assets under management. He’s also a homeowner in L.A., which continues to battle raging wildfires. While his place remains intact, many of his friends haven’t been so lucky.
Wallace is becoming accustomed to external forces beyond his control. First, the pandemic drastically altered the landscape for many of Fifth Wall’s limited partners, a who’s who of real estate (CBRE, Cushman & Wakefield, Lennar). Unfortunately for many of those same players, office vacancy rates still stand at roughly 20% nationwide, and analysts don’t expect that number to budge as many companies abandon the idea of a full return to the office.
Proptech has also taken its slings and arrows in recent years, partly owing to high-fliers whose fortunes turned fast, like WeWork, which emerged from bankruptcy last June following a failed IPO and massive restructuring.
Change typically presents hidden benefits, however, and Wallace believes the industry is poised for a bounce back. As he sees it, there are ballooning opportunities tied to asset resilience — or using tech to help real estate assets withstand damage and disruption. He also sees a huge opportunity to help Fifth Wall’s limited partners more aggressively seize on the tech industry’s demand for data centers — and the energy required to fuel them.
We talked with Wallace recently about some of those trends, along with life in L.A. during what has felt to so many like the apocalypse. You can listen in on that full chat here or read on for excerpts from our conversation, edited lightly for length.
You’re in L.A. How are you doing?
It’s just tragic what has happened. Everyone on our team is safe. We’re in Santa Monica and they had to evacuate our office. This is a crucible moment for Los Angeles, and there’s going to be a lot of reflection on the other side of this, with the big political and economic questions that California has been grappling with for a long time coming into the fore. That’s a positive thing, but right now, it’s just devastating to see parts of this beautiful, amazing city destroyed.
How are you thinking about what comes next? There’s going to be a lot of cleanup, a lot of reconstruction. That must represent unexpected opportunities, as unseemly as that is to say.
I wouldn’t say opportunities … I do not think that on the other side of this crisis, people are going to stop wanting to live in Los Angeles … So I remain optimistic that this will be a moment of rebuilding and reimagination for one of America’s greatest cities. And I would say we at Fifth Wall are excited to be a part of that. What being a part of that looks like? I don’t know yet.
A major issue that homeowners and business owners were dealing with is [even before the fires] is the flight of insurance providers from the state …
We’re one of the most active investors in fintech for the residential industry. Fifth Wall invested in Hippo, which is a home insurance company that was very active in California. [Editor’s note: Hippo stopped writing new homeowners’ insurance nationwide last summer.]
I mean, a lot of the regulation that was very well-intentioned and focused on benefiting consumers has actually had the opposite effect, and it’s creating market asymmetries that are exacerbating the very problems we have now, which is a lot of homes being uninsured or people getting their insurance canceled. So what we are excited about is two things: there are better solutions for consumers that could be developed, and we’re interested in potentially investing in them. The other thing that I’d like to see is a streamlining of the amount of bureaucracy that is required to launch insurance companies.
Regulations aside, does the math work out? It’s hard to understand how startups with different regulations can [insure] California when these devastating things happen that make it very hard for insurers to recoup their investments.
It’s very hard to answer that question without looking at a county-by-county analysis. It’s possible that some areas are going to be uninsurable, but it’s also possible that some areas are going to be uninsurable that otherwise would be without regulation, and the latter is what I’m focused on mitigating.
This isn’t just a California problem. It might be more acute in California and the value of homes might be higher in California, but we have to solve this as a nation.
Do you think the wildfires might reshape the way real estate is valued in these high-risk areas? That doesn’t seem to have happened in, say, Miami.
I think it is going to increase prices for a few reasons. There’s going to be a lot of new construction in Southern California that’s going to drive up the replacement cost for homes. People are still going to want to live in these beautiful parts of the country; you aren’t going to see an exodus of people simply because of this.
The increase in insurance premiums is also going to lead to less affordability of homes, and that could have downward pressure [meaning houses might cost slightly less because sellers have to factor in the high cost of insurance]. The net of it, though, is this is going to increase a lot of home prices throughout Southern California and especially in West Los Angeles.
You’re an investor in ICON, a 3d printer of modular homes. Do you see a potential opportunity for that company? We reported that it laid off a quarter of its staff just this month before the fires broke out.
ICON is a really exciting business. Fifth Wall is a small investor in that company. Our thesis was not so much around wildfire prevention or post-natural-disaster rebuilding but around, how do you build homes faster and cheaper and with fewer materials than you do today? What they’ve built is a way of effectively printing a home and in the process, massively reducing the waste associated with home construction.
One of the crazy stats that most people don’t know is that about 5 percent of all the material in U.S. landfills is material that went to a construction site and then went straight to a landfill. It’s a massive problem that drives up cost for the consumer, makes it harder to operate construction companies, and has a massive carbon footprint. The question, I think, is: How can you scale that up? Can you make that cost effective?
Have you made investments in companies that are specifically focused on making nonflammable materials?
No, but we should, and I think it’s a space that will receive a lot of attention right now … [Going forward,] retrofitting is going to be the big problem. Most of the homes we need to protect are already built, and they are built with materials that can be very hard to rip out. And so in real estate tech, the bulk of the problem and the bulk of the value that you can add to society is by retrofitting the assets we already have, whether those be buildings or homes or infrastructure assets.
Of course, in rebuilding, we should be very cognizant about the materials used, and we should use the best solutions. But the vast majority of the homes at risk in Southern California already exist today.
Broadly speaking, the proptech sector has seen fewer deals in recent years. Is it fair to say that overall interest in the industry has cooled?
It has absolutely cooled. I think we just lived through — and are still in — cold, bitter capital markets for proptech. You hadn’t seen any big M&A events. Basically none of the focused venture funds, Fifth Wall included, raised any capital during that period. There were very little VC inflows to the space.
The flip side of that is what you’re seeing now — companies that survived this Darwinian extinction event. The companies that made the right cost cuts, that pivoted their business model, that pivoted their marketing, and that went through recapitalizations are emerging on the other side of this stronger, more viable, and more durable in a long term. I do think spring has sprung for the proptech industry, and you’re seeing lots of positive indicators for the space right now. [Editor’s note: Here, Wallace references the IPO of ServiceTitan, a Fifth Wall portfolio company that makes software for contractors and went public in December, and the recent sale of another portfolio company, Industrious, to its partial owner, CBRE.]
What about this existential threat to the office industry about which we’ve been hearing for years?
Long term, [there are questions] about the office industry, but alongside that you’re seeing explosive growth in categories that were never even thought of as real estate before. Data centers are absolutely exploding. And some of those that that explosion is forcing the real estate industry to grapple with big questions. Like, the AI revolution that has everyone enthralled is absolutely not possible without a massive scale up of data centers in the U.S. Yet a massive scale up of data centers in the U.S. is absolutely not possible without massive production of new energy.
Go on …
We need racks of servers that can do training and do inference all over the world — and we need lots of them. This is not a surprise or a secret in real estate capital markets; data centers have probably been for the past two years the hottest asset class in the real estate industry. But now there’s an associated problem that’s emerging . . . which is that data center is so energy intensive, the local utility will not allow you to plug in that grid …
That’s forcing the real estate industry to say, “We have to be in the energy business ourselves if we want to be in the business of computational data centers.”
What are your LPs expecting you to do? Are you going to be investing in fusion startups now?
Fusion is obviously really exciting, but we have a more near-term problem. We need the energy now or next year. Ideally, we do not want those to be fossil-fuel based, dirty energy sources … so that really leads to the renewables that we know are cost viable, [which is] most obviously solar. [So] the bottom line is, yes, we are investing in solutions to accelerate the development of solar alongside our real estate investors, and real estate companies will become energy development companies themselves.
The Week’s Biggest Funding Rounds: Anthropic Leads Slow, Slow Week
After a frenetic first couple of weeks as far as big rounds go, this week was quieter than a library. Only one round of more than $100 million was reported — although it was actually $1 billion — as everything came to a crawl. The goings on in Washington, D.C., likely had something to do with that, as many companies may have decided to hold their news until a slower week.
1. Anthropic, $1B, artificial intelligence: Anthropic, a ChatGPT rival with its AI assistant Claude, is reportedly taking in a fresh $1 billion investment from previous investor Google. In October 2023, Google invested $2 billion in the OpenAI rival. The new funding also comes just a couple of weeks after it was reported the startup was in advanced talks to raise $2 billion in a deal led by Lightspeed Venture Partners that would value it at $60 billion. Anthropic was last valued at $18.5 billion in February 2024. This deal also comes just two months after Amazon agreed to invest another $4 billion in an AI startup. That deal followed Amazon’s 2023 announcement to invest up to $4 billion in Anthropic — a deal that gave the Seattle-based e-commerce and cloud titan a minority stake in the startup.
2. Highnote, $90M, fintech: San Francisco-based Highnote, a fintech startup whose platform enables companies to embed virtual and physical card payments into their products, closed a $90 million in Series B led by Adams Street Partners that reportedly values the company at $750 million. While known mainly as a card issuer, the company is creating a platform that allows companies to receive card payments. Founded in 2020, Highnote has raised more than $145 million, according to the company.
3. Render, $80M, cloud infrastructure: Render, a cloud application platform, raised an $80 million Series C funding led by Georgian. The San Francisco-based startup’s cloud platform looks to simplify things for developers — eliminating the need for them to set up infrastructure configurations and settings. Founded in 2018, the company has raised nearly $157 million, per Crunchbase.
4. ShopMy, $77.5M, marketing: It’s not enough to have a great brand anymore — you also need to have relationships with influential creators. That’s where New York-based ShopMy comes in. This week, the startup — which helps creators manage product recommendations and eventually form relationships with big brands — raised a $77.5 million Series B led by Bain Capital Ventures and Bessemer Venture Partners. Founded in 2020, the company has raised $97 million, per Crunchbase.
5. Fundraise Up, $70M, nonprofit: Even fundraising is getting into AI. Brooklyn-based Fundraise Up, a fundraising platform for nonprofits globally, raised a $70 million financing round led by Summit Partners. The startup uses AI in its platform to boost donations in a variety of ways, including tailoring donation suggestions to individual donors. Founded in 2017, the company has raised $82 million, per Crunchbase.
6. Clutch, $65M, fintech: San Francisco-based Clutch, a fintech that partners with credit unions to enhance their offerings, completed a $65 million Series B led by Alkeon Capital Management. Founded in 2020, the company has raised $106 million, per Crunchbase.
7. Eleos Health, $60M, mental health: Boston-based Eleos, a startup using artificial intelligence to help with behavioral health, raised a $60 million Series C led by Greenfield Partners. Founded in 2019, Eleos says it has raised more than $120 million.
8. Lindus Health, $55M, biotech: New York-based Lindus Health, which helps clients run faster clinical trials, locked up a $55 million Series B led by new investor Balderton Capital. Founded in 2021, the company has raised almost $80 million, per Crunchbase.
9. Rhino.ai, $50M, artificial intelligence: Washington, D.C.-based Rhino.ai, an AI-driven development platform that enables enterprise application design, raised a $50 million Series A led by Koch Disruptive Technologies. Founded in 2023, this is the company’s first announced round, per Crunchbase.
10. Method Financial, $42M, fintech: Austin, Texas-based Method, a financial connectivity API for consumer liability data and payments, locked up a $42 million Series B led by Emergence Capital. Founded in 2021, the company has raised nearly $61 million, per Crunchbase.
Big global deals
Anthropic’s raise was easily the biggest of the week. The next largest came from Europe.
- Sweden-based Neko Health, a health-tech startup, locked up a $260 million Series B.
Glenn Martens Seen as Frontrunner for Maison Margiela
Diesel's creative director since 2020 would succeed John Galliano at the helm of the Paris-based house.
BLUE CLUES: Speculation is rife in Paris that Renzo Rosso has found the successor to John Galliano at Maison Margiela within his own stable of design talents.
It is understood that Glenn Martens, creative director of Diesel since 2020, is in pole position to take up the plum Paris post.
Representatives for Margiela parent OTB could not be reached for comment.
Martens, who has heated up Diesel and won a cult following for his work at Y/Project, would certainly bring to Margiela formidable design chops and a yen for twisted constructions.
The Belgian designer has also dabbled in couture as a guest designer at Jean Paul Gaultier in 2022.
Martens was involved with Y/Project since it was launched in 2010. It ceased operations earlier this month after failing to find a buyer.
Galliano bowed out of Maison Margiela at the end of last year and on a high: His spring 2024 Maison Margiela Artisinal couture collection was one of the most acclaimed of the year, catapulting him and Margiela near the top of the fashion heap.
OTB Group also controls the Diesel, Jil Sander, Marni and Viktor & Rolf brands, production arms Staff International and Brave Kid, and holds a stake in the Amiri brand.
Martens grew up in the Belgian city of Bruges and graduated from Antwerp’s Royal Academy of Fine Arts in 2008. He was famously recruited by Jean Paul Gaultier after Gaultier saw his graduation show and conscripted him as junior designer for his women’s pre-collection and the G2 men’s label.
Cover:
-The bond market has experienced a challenging period, with rising interest rates causing the worst fixed-income returns in almost 90 years. President Donald Trump's political promises, including tariffs, tax cuts, and heavy government spending, could push interest rates higher. The US Treasury, the world's biggest borrower, has felt the pressure of higher bond yields most acutely, as the government's total debt has grown larger than the US economy. This burgeoning debt points to higher interest yields and lower bond prices in the years ahead, driven by ongoing deficits totaling 6% of gross domestic product and surging interest expense on existing and new debt. The US Treasury must decide whether to be part of the problem or part of the solution.
Interview:
-No update
Tech Trader:
-Tech leaders at the White House announced the Stargate Project, a joint venture aiming to build new artificial-intelligence data centers in the US. The project promises investments of $100B in the first year and $500B over four years. SoftBank CEO Masayoshi Son will handle financing, OpenAI CEO Sam Altman will contribute AI expertise, and Oracle executive chairman Larry Ellison will oversee the buildout. MGX, a new AI investment firm in the United Arab Emirates, will be a financing partner. Microsoft, Nvidia, and Softbank-owned Arm Holdings were named as technology partners. However, there are several unanswered questions about the project, including where the money will come from. SoftBank has $38B in cash and short-term investments, and $80B in long-term debt. MGX may shoulder much of the financial burden, but it is unclear what resources it can muster.
The Trader:
-The stock market is currently dominated by the Magnificent Seven and the Federal Reserve, with investors potentially being the winners. The S&P 500 index rose 1.8% for the week, while the Dow Jones Industrial Average and NASDAQ Composite rose 2.2% and 1.7% respectively. Apple, Microsoft, Meta Platforms, and Tesla are expected to report earnings on January 27, with Netflix's fourth-quarter numbers indicating a positive impact. However, solid growth may already be priced into the Mag 7 stocks, and investors should not chase this momentum. The Roundhill Magnificent Seven ETF is trading at 30 times earnings estimates for this year. The Fed is primed for a knockout, as it is no longer expected to cut interest rates on January 29 and investors are not pricing in high odds of an ease at the March meeting. However, many on Wall Street believe it could deliver one or two more rate cuts this year.
-Healthcare stocks have been concerned since the election over the potential impact of Robert F. Kennedy Jr.'s confirmation as President Trump's Health and Human Services secretary. RFK Jr.'s skeptical comments about vaccines have raised concerns about a potential slowdown in drug development in the life-sciences industry. He has been particularly critical of the Food and Drug Administration, causing fears that approval of new medications could take longer than usual. However, Thermo Fisher Scientific, a medical instruments and equipment giant, has seen its stock rise about 3% since early November and nearly 11% in January. The need for major healthcare companies to develop new blockbuster drugs is more important than the specter of RFK Jr., as Covid-19 vaccines and treatments are no longer as lucrative as they were in 2021.
Features:
-Guggenheim analyst Joseph Osha has cut his rating on GE Vernova to Hold from Buy and withdrew his previous $380 target for the share price. Vernova stock closed just below $438/share on Thursday, and Osha is moving to the sidelines. Despite the "easy money" gains, Osha believes that the stock's valuation is less likely to improve as rapidly as they have been improving. GE Vernova shares were up more than 200% since the spinoff, but the downgrade has had a muted initial reaction due to Wall Street's positive reaction to earnings reported earlier this week. William Blair analyst Jed Dorsheimer noted record orders for gas power and electrification technologies, suggesting that President Donald Trump's power policies should boost Vernova's gas power and nuclear businesses. The stock trades for about 26 times the earnings before interest, taxes, depreciation, and amortization expected for 2026.
-Endeavor Group, the company that owns Ultimate Fight Championship and World Wrestling Entertainment, is facing a potential takeover bid from a group of big investors. The investors may request more than the current takeover price, given a sharp rally in its most valuable asset, a majority stake in the company. Silver Lake, the tech investment firm that reached a deal to take Endeavor private in April, could boost its offer for Endeavor, led by CEO and Hollywood agent Ari Emanuel. The deal is expected to close in the current quarter. Endeavor's stock is up 0.5% at $31.06, reflecting investors' view that the offer may have to rise. The key issue is that Endeavor owns just over half of TKO Group Holdings, which owns the UFC and WWE sports entertainment businesses. Since the deal was struck in 2024, TKO Group stock has risen just over 50%, raising the value of Endeavor's stake in TKO Group by more than $5B.
Europe:
-Novo Nordisk has reported early-stage data on a new weight-loss drug, amycretin, which could potentially outperform existing obesity blockbusters. The data comes after investors dropped Novo shares in December after CagriSema fell short of expectations. The Phase 1b/2a trial of amycretin showed patients on the highest dose losing 22% of their body weight after 36 weeks. The efficacy results were 4% better than a similar period in a Phase 3 study of Eli Lilly's Zepbound, the most effective weight loss drug currently on the market. If amycretin works better than Zepbound, it could help Novo regain weight-loss market share. However, the study is relatively early-stage and Novo did not provide details on amycretin's safety and tolerability profile.
Emerging Markets:
-No update
Commodities:
-President Donald Trump has called an "energy emergency" and signed executive orders to boost oil drilling and revoke clean energy rules from the Biden administration. The policy aims to "unleashing energy dominance," urging companies to "Drill Baby Drill." However, the biggest impact of Trump's policy changes may be on fossil-fuel demand. The US government has limited control over oil drilling, unlike countries with state-owned oil firms like China and Saudi Arabia. US oil production is already at record levels, and most companies are slowing production growth to ensure efficiency. Trump wants oil companies to drill in Alaska's wilderness, but there is little appetite due to high upfront costs. The natural gas industry is also facing challenges due to too much supply forcing prices down.
-Venture Global, a global liquefied natural gas company, has launched the largest ever IPO for a US energy company in history at a value of $60B. This raises some risk to the shares but could attract an audience that doesn't usually invest in energy. The IPO is a big splash for an industry that hasn't had many in recent years, as traditional oil-and-gas companies are associated with older products that will eventually become defunct as the world shifts away from fossil fuels. Venture Global CEO Michael Sabel believes the investor base for energy has "broadened out substantially," pointing to the interest seen in both Venture Global and other companies, such as Constellation Energy, which owns nuclear power plants and has seen stock double over the past year due to excitement about using nuclear power for artificial-intelligence data centers.
Streetwise:
-Jack Hough observes that the earnings season has been surprisingly good, with companies beating Wall Street's consensus estimate around three-quarters of the time. These surprises are often due to companies and analysts managing investor expectations to beatable levels, rather than business results wowing. Over the past five years, in cases where companies beat both earnings and sales estimates, their shares rose by an average of less than 1%. This suggests that investors are not underreacting to the surprises. A study over a decade ago found that the combination of earnings surprises and immediate price jumps was a solid predictor of handsome returns over the following months. However, many companies have delivered just that, with shares gaining an average of 3.6% in response. Overall, the blended fourth-quarter growth estimate for the S&P 500 has been nudging higher due to widespread and large upside surprises, approaching 13%.
Brazilian airline merger would boost aviation sector, says Azul boss
John Rodgerson defends potential tie-up with rival Gol despite concerns about competition and ticket pricing
The boss of Brazilian airline Azul has argued that its planned merger with rival Gol to create the country’s largest carrier will strengthen Brazil’s aviation industry and expand the number of routes on offer.
Chief executive John Rodgerson defended the tie-up as bolstering a sector still grappling with the financial fallout of the Covid-19 crisis, saying it would drive efficiencies and benefit consumers.
Azul-Gol would control about 60 per cent of the domestic market, giving rise to concerns about the potential impact on competition and ticket prices. But Rodgerson described it as a “merger of growth” that could increase the number of destinations served by Azul from 150 to 200.
“We can strengthen our balance sheet and connect a lot more people,” the American businessman told the Financial Times. “[It is an] opportunity to grow and to add more cities to the map, add more [flight] frequencies.”
He added that the deal, which will require regulatory approval, could even lower ticket prices in certain markets, “because we’re going to get more capacity up in the air”.
The proposed tie-up follows a difficult period for Latin America’s airlines. They received little direct financial assistance from governments during the pandemic, in contrast to the billions of dollars showered on US and European peers, leading many to skirt or fall into bankruptcy.
Brazilian carriers also complain that the country’s expensive jet fuel prices and widespread passenger lawsuits push up costs and fares.
Gol filed for bankruptcy last year, and is seeking $1.9bn of financing in order to exit Chapter 11 proceedings in the US, while Azul has struck out-of-court agreements with creditors to reduce its liabilities and unlock new funds. Latam Airlines, the region’s largest group, emerged from bankruptcy protection in late-2022.
Azul and Abra, Gol’s majority shareholder, signed a memorandum of understanding this month, agreeing to combine the companies into a single entity but continue to operate both brands separately.
Shares in the two groups have rallied, though they remain at a fraction of pre-coronavirus levels.
The new Azul-Gol would have combined annual revenues of some R$37bn ($6.2bn), based on 2023 figures, along with an overall net debt of about R$52bn, according to the latest filings. Rodgerson said it should have a reduced cost of capital and benefit from joint procurement.
Both airlines were given a boost this month when the government agreed to significant discounts on outstanding tax liabilities.
Industry watchers believe antitrust watchdogs may force the enlarged entity to cede landing slots at popular airports in order to obtain regulatory approval
Founded in 2008, Azul challenged the Latam-Gol dominance with a focus on smaller cities not served by other airlines. Rodgerson said the merging companies’ routes only overlapped by 10 per cent, adding that higher levels of market concentration were found in the UK, France, Canada, Korea, Germany and Chile.
The CEO suggested regulators could be appeased through “remedies of growth”, with extra flights added to certain locations.
The government of leftwing president Luiz Inácio Lula da Silva, which wants to make air travel more affordable and has pledged to support carriers, appears to be favourable.
Its ports and airports minister suggested ticket prices would not rise following the merger, which he said fell into a wider global trend of airline consolidation.
Rodgerson said he had discussed the idea of a merger last year with Lula. “I think he totally understood the logic [and] that we are a massive customer of Embraer,” the CEO said, referring to the Brazilian plane maker. “[Lula] wants to see more people travel. And so in that sense, our objectives are totally aligned.”
However, Rodgerson said that, regardless of the merger, ticket prices would need to rise in the short term following a slump in the Brazilian real, which has further pushed up the costs of kerosene and spare parts priced in dollars. These pressures have led Azul to close a dozen routes for the first time.
Now Wanted in Silicon Valley: Ho-Hum Businesses With Thin Profit Margins
Venture-capital firms are bringing AI and dealmaking to accounting, property management and other unglamorous fields
Forget virtual-reality headsets and brain-chip implants. Silicon Valley is coming for boring businesses that do lots of clerical work.
The prospect of artificial intelligence automating administrative tasks is attracting venture capitalists to ho-hum professions such as accounting, customer-service centers and property management. Tech entrepreneurs have raised hundreds of millions of dollars to retrofit these businesses with AI tools and drive up their profitability.
The playbook also involves startups adapting one of Wall Street’s favorite practices: the roll-up. Private-equity firms refined the model of merging businesses in sectors such as car washes and heating and air conditioning outfits and using greater scale to cut costs. Much of the capital these new startups raise is similarly going to fund buyouts of businesses, which are “rolled up” into one operation.
“These services businesses, many of them ultimately globally just barely break even, so they haven’t got a lot of attention from VC investors,” said Marc Bhargava, a managing director at General Catalyst, a venture firm planning to pour hundreds of millions of dollars into these types of investments. “That’s going to change.”
The startups in this new field add to the growing universe of places where investors can get exposure to the theme of AI transformation, beyond companies like chip maker Nvidia. Other ways people have expressed bullishness on AI’s potential include buying shares of power producers, turbine makers, manufacturers of data-center equipment and other providers of AI infrastructure.
Among the flushest new players bringing AI to quiet professions is Long Lake Management Holdings, a startup founded 13 months ago. Since then, Long Lake has raised $600 million plus from investors and acquired around a dozen companies that collectively employ about 1,400 workers, people familiar with the company said.
Long Lake’s first deals were for businesses that manage the operations of homeowners associations. Those management companies are now adopting AI tools for tasks like generating presentations for HOA board meetings. It is targeting an expansion into other industries, including human-resources services.
Another startup that attracted venture funding is Crete Professionals Alliance, which has acquired multiple regional accounting and professional-services firms. Crescendo, which launched last year, bought out a customer-service company that had over 3,000 workers its first deal. Dwelly, a British property-tech startup, did a deal last year for a home-rental agency that managed over 1,000 properties.
Venture capitalists are investing in roll-up efforts while the broader market for more traditional startup fundraising hasn’t returned to previous highs. U.S. startup investment volume last year was 41% lower than in 2021, according to PitchBook data. That year, low interest rates and demand for digital services during the pandemic drove record levels of activity.
A big exception is the multibillion-dollar investment rounds into high-profile AI companies like OpenAI and Anthropic. Some investors in those startups are also backing the efforts to bring AI to less glamorous sectors. Josh Kushner’s Thrive Capital, which owns a significant chunk of OpenAI, funded Long Lake and Crete.
Bhargava of General Catalyst said his firm dedicated $1.5 billion to the strategy in recent years and is looking to write checks of at least $100 million for each project it backs. The firm has invested in seven startups pursuing AI-enabled rollups, including Long Lake and Crescendo.
Some of the entrepreneurs behind these startups come from Wall Street. Long Lake was co-founded by Alex Taubman, who spent a decade at Oaktree Capital Management. He also worked at the investment firm that managed his family’s wealth, much of which came from the luxury-mall operator they founded, The Taubman Company.
But some of the new startup tactics will look foreign to traditional buyout investors. Private-equity firms, for example, historically used borrowed money to fuel their dealmaking while maintaining ultimate control. Venture firms are backing startup founders that retain majority ownership of the businesses, which are so far avoiding debt.
Five Takeaways From Bill Gates’s Interview With The Wall Street Journal
The billionaire philanthropist speaks about his early years, geopolitics, past mistakes and how he isn’t always checking his phone
Microsoft co-founder Bill Gates has spent the past quarter of a century focused on philanthropy and investing in startups. Recently, he sat down for a wide-ranging interview with Wall Street Journal Editor in Chief Emma Tucker.
The billionaire discussed his childhood and why he thinks he likely would have been diagnosed with being on the autism spectrum if he were a kid today. He also weighed in on President Trump’s reform task force led by fellow billionaire Elon Musk, U.S.-China relations and his ties to convicted sex offender Jeffrey Epstein.
Gates recently had a three-hour dinner with Trump, saying he was “impressed” by the commander in chief’s interest in global issues. He has a memoir due out next month titled “Source Code: My Beginnings,” which covers his childhood through the beginning of Microsoft.
Here are the takeaways from the interview:
As a child, he showed signs of being on the autism spectrum.
Reflecting on his childhood, Gates said he showed signs of being on the autism spectrum that weren’t associated with the disorder at the time but probably would be today. “I didn’t behave in a standard way,” he said.
Gates was able to concentrate deeply on math and science, which “became a strength,” he said.
His parents, however, worried about him fitting in. They handled the situation well, he said, by sending him to a therapist and the school where he met Paul Allen, his Microsoft co-founder.
He doesn’t want DOGE to go overboard.
Gates said he supports Trump’s mandate to reduce federal expenditures through a new Department of Government Efficiency, known as DOGE.
“I’m among the people who think the deficit needs to be brought down because otherwise it will create a financial problem for us,” he said. “Given the numbers that they have tossed around, they’ll have to look at everything including pension, defense, healthcare.”
But Gates doesn’t want to see Musk, who is in charge of the new entity, completely getting rid of certain programs. Some should stay because they provide long-term benefits, he said, including medicines that enable millions of people to live with HIV.
“If you cut those off, not only would they die when we have a cure on its way, but the negative feelings you’d have say, in Africa, would be worse than never having done the thing at all,” he said. “I hope the value system still includes the half a percent that saves all those lives.”
He thinks the U.S. and China need a more even-keeled relationship.
Asked about the current direction of relations between the two superpowers, Gates said, “It’d be great if we had more win-win elements.” Getting along is important for dealing with global issues ranging from the Earth’s climate to deadly diseases, he said.
Gates added that there is a 10% to 15% chance of a natural pandemic occurring in the next four years. “It’d be nice to think we’re actually more ready for that than we were last time. But so far we’re not,” he said.
Spending time with Epstein was ‘foolish.’
The Journal previously reported on Gates’s ties to Epstein, including that the latter threatened Gates over an affair he had. The two met a few times, Gates has said, to discuss philanthropy. He now realizes he had been played by Epstein.
“In retrospect, I was foolish to spend any time with him, and he sort of got time with various people by spending time with other people,” said Gates. “I thought it would help me with global health, philanthropy. In fact, it failed to do that, and it was just a huge mistake.”
Asked if he has since become more wary of making connections with people, Gates said: “Definitely. I mean, are you kidding?”
He is still close to Microsoft, including its CEO.
Gates stays connected to the tech behemoth through what he called a “very close relationship” with Chief Executive Satya Nadella. “I love doing product reviews, and he brings me in to do that,” Gates said. “It’s maybe 15% of my time. It helps me stay up-to-date.”
Despite living in the mobile age, Gates described himself as “not a big phone user.”
“My daughter, my youngest, gives me a hard time because she expects if I get a text, within three or four minutes I should be aware of it,” he said.