A Billionaire Is Buying Entire Businesses and Converting Them to Run With AI

Where have I heard this one before?

/ Artificial Intelligence/ Investors/ Labor/ Private Equity

Image by Vaughn Ridley / Sportsfile for Collision via Getty / Futurism

You might have heard the term “private equity” thrown around lately.

Private equity, or “termite capitalism,” as it’s been ironically called, is a sweeping term for a massive industry built around buying and flipping established companies. These businesses can be just about anything — municipal water utilities, chain restaurants, bottling plants, and even retirement homes.

The strategy is largely extractive. When someone flips an abandoned house, they’re theoretically making structural repairs and quality-of-life updates, in the hopes of selling for more than the cost of the whole project. At its worst, private equity does the opposite: taking over healthy companies, selling off their assets and laying off employees en masse — hence the “termite” moniker.

Now, venture capitalist and tech billionaire Elad Gil is doing something that sounds awfully similar — except that unlike the largely technophobic private equity space, according to a recent profile by TechCrunch, he’s been using his immense fortune to buy up companies and reshape them to run using AI.

The scheme looks like this: Gil, or a firm he backs, acquires a stable, white-collar business with a healthy cashflow, like a law firm or a marketing agency. Then, Gil “helps them scale through AI” — techno corpospeak for “lay off a bunch of workers and automate their labor with AI” — using the proceeds to buy other firms to add to the empire. Think Sam Bankman-Fried meets “The Blob,” and you’re not far off.

Overall, it’s not really a new strategy. “Roll-ups” of small firms into one conglomerate are pretty common in private equity, even if they have some pretty devastating consequences for workers and their communities.

By embracing AI, the billionaire insists, “you can increase the margins dramatically and create very different types of businesses.” Gil lists tasks like text manipulation, audio, video, coding, and sales as key tasks generative AI can supposedly help streamline — all things it’s notoriously awful at, by the way, so you could look at the whole project as a huge bet that the tech will improve dramatically enough for it to succeed.

“There used to be these technology-enabled roll-ups 10 years ago, and most of them kind of ended up being not really that much of a user of technology,” Gil told TC.

“It was kind of like a thin veneer painted on to increase the valuation of the company,” he said without a hint of irony. “I think in the case of AI, you can actually radically change the cost structure of these things.”

In reality, experts say it’s more likely that competition in the tech space and poor performance by AI models make this strategy a bust. But hey, billionaires know best.

More on startups: Top Venture Capitalist Says AI Will Replace Pretty Much All Jobs Except His, Which Relies on His Unique Genius