Venture Capital’s Latest Strategy: Private Equity–Style Roll-Ups
Venture capital firms have increasingly been acting like private equity firms by investing in or buying mature businesses in need of a turnaround. Now those firms are utilizing another PE strategy—rolling up multiple competitors into a single company that can operate more efficiently by combining costs.
Venture capital firms such as General Catalyst and 8VC are creating or investing in these types of holding companies in fields such as call center support, accounting and property management. In contrast to PE-style roll-ups, the VC firms are starting companies or backing them before their businesses have proven themselves. To keep costs down, they’re incorporating artificial intelligence software to take over work such as responding to tech support requests.
The Takeaway
Venture firms like General Catalyst and 8VC are investing in services-oriented startups in the hopes of combining them with other firms, a roll-up strategy borrowed from private equity that incorporates AI.
For example, General Catalyst, known for venture investments in Canva and Stripe, helped start Long Lake Management and invested in the firm, which was co-founded by early Ramp director Zach Frankel. Long Lake aims to acquire numerous homeowners’ associations—the companies that govern and manage housing communities—and to use AI to automate operations and run them more efficiently, according to people with direct knowledge of the company. There are hundreds of thousands of HOAs across the country, according to the Foundation for Community Association Research.
8VC, known for early bets on Flexport and Anduril, in July led a $50 million round in Loop, which handles payments and financial audits for logistics businesses, Loop co-founder Matt McKinney said.
Loop is building its own AI agents by fine-tuning models and analyzing data to help payment providers manage transportation and budgets and offer automated customer support. The company has acquired a freight payment provider and is in the process of purchasing another. McKinney, who declined to name the target, estimates there are about 250 freight payment providers in the U.S., serving a market of about $15 billion.
Several years ago, McKinney said, “I would have been laughed out of the room if I pitched VCs on the strategy” to buy old payment providers. Since then, he added, the strategy has become “the hottest thing in Silicon Valley.”
That might be an overstatement, but there are signs of the trend in many corners of the industry. Last spring, Thrive Capital and Bessemer Venture Partners invested in a Tampa, Fla.–based accounting firm, Crete Professionals Alliance. Crete has said it will invest in other accounting businesses and then use its technology to help run those firms.
WndrCo, a venture firm and holding company co-founded by Hollywood studio veteran Jeffrey Katzenberg, in 2023 invested in 22-year-old call center GlowTouch. Last year, WndrCo’s investment helped the Louisville, Ky.–based firm buy a 3,000-person, 20-year-old call center.
GlowTouch, now rebranded to UnifyCX, is in the process of acquiring another call center and plans to buy others to combine them, according to CEO and founder Vidya Ravichandran. After buying the companies, it then incorporates AI to screen résumés for recruiting, automate support tickets and speed up employee training and quality assurance checks, said Ravichandran.
“Ninety-nine percent of the companies out there in space have really not even thought about [AI],” she said.
And last year, Accel partner Peter Doyle left the storied VC firm after nine years to start Treeline, a startup focused on automating IT services. Treeline plans to acquire other IT businesses. The startup has been in fundraising talks with investors including Andreessen Horowitz, according to people close to the business.
The strategy is a shift from traditional venture bets in more ways than one. Venture investors have typically backed high-margin software or consumer internet businesses they hope will go public someday. In pursuing services firms, they are writing checks for lower-margin businesses that are unlikely to yield the same high investment returns from going public as software companies. But returns are more guaranteed.
“You have to buy the accounting firm,” which can be more expensive than giving a founder a seed investment check of $1 million or $2 million, said ChenLi Wang, a general partner at WndrCo. “But if it doesn’t work, at the end of the day you still have an accounting firm,” whereas software businesses that don’t achieve a high enough scale usually have to shut down entirely.
ChenLi said his firm’s roll-up investment strategy was inspired by Berkshire Hathaway and Constellation Software, which operate portfolios of businesses they’ve bought.
Some founders of services firms are skeptical about whether this strategy will work. Will Champagne, the founder of a recruiting firm, said a venture capitalist approached him a few months ago, expressing an interest in buying his practice. He turned the offer down because he felt the investor did not understand the intricacies of the business, which rely on personal relationships and “human nuance,” he said.
“We respect our candidates far too much to let AI handle tasks like screening calls or deciding whether someone should move forward in the process,” he said.
Venture investors are convinced they can overcome these challenges, in part by hiring staff and raising funds to focus on buyouts. General Catalyst raised a $1.5 billion fund in October to establish and incubate startups, which includes funding buyouts of young services businesses. The firm has completed or is working on a dozen roll-ups in legal, accounting, software bug testing and other services fields, according to a person close to the firm.
One is Crescendo, a call center company it created in January 2024. In October, it invested in the call center company at a $500 million valuation. That same month, Crescendo said it acquired PartnerHero, a customer service company.
Ultimately, General Catalyst aims to take 30% to 45% stakes in startups that could act like holding companies for specific sectors—higher than the 10% to 20% stakes venture investors usually get from startup investments, but still minority ownership, said the same person.
8VC has invested in roughly a dozen AI services startups evaluating buying legacy services businesses as a main way they’ll grow, said Drew Oetting, a founding partner at the firm. Such acquisitions should help enterprise software companies stand apart because they’ll immediately be able to sell their software to more customers.
One risk in the strategy is that acquiring a business that ends up floundering is more expensive than trying to grow through marketing or sales, he said.
“Mistakes become very expensive, much more expensive than [venture capitalists] are used to,” he said.