05 Jun, 2025

Venture capital seeks AI winners as private equity makes infrastructure play

By Dylan Thomas and Neel Hiteshbhai Bharucha


Risk is filtering the flow of private capital into AI as venture capital and private equity investors pick different targets in the booming industry.

While venture capital competes to invest in AI, private equity is prioritizing investment in the infrastructure that underpins AI's expansion. Private equity-backed datacenter M&A hit $18.15 billion globally in 2024, the highest total in at least five years, according to S&P Global Market Intelligence data.

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There is money to be made on the cutting edge of AI, but investors there risk being left behind by the next disruptive AI innovation, Blue Owl Capital Inc. co-CEO Marc Lipschultz said when the alternative asset manager reported 2024 fourth-quarter earnings in February. "We don't want any of those risks for our investors," Lipschultz said.

"If you believe that 10 years from now, AI will be an important part of the fabric of IT or the way we operate in this economy, then you want the picks and shovels, you want the infrastructure that goes with it," Lipschultz said.

Risk and reward

Private equity and venture capital firms invested $63.97 billion in AI via M&A between 2020 and 2024, according to Market Intelligence data. Over three times as much — a total of $216.51 billion between 2020 and 2024 — was invested in AI companies through rounds of funding, a proxy for venture capital activity.

The different approaches to investing in the fast-growing AI industry reflect the differences in strategy that separate venture capital and private equity. A preference for a lower-risk investment with stable returns is typical of the private equity approach. Venture capital investors aim for higher-risk and likely higher-reward investments in young companies that have the potential to gain a foothold in the market.

"Many of those [early-stage AI] companies, their business model is more amorphous, or more speculative. That is the playground for [venture capital]," said Glenn Mincey, US head of private equity for KPMG.

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A $40 billion round of funding raised in March by OpenAI LLC was the largest private equity or venture capital investment targeting AI companies since Jan. 1, 2024.

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Datacenters are a safe haven

Cash flow is another key consideration in private equity's picks-and-shovels strategy, said Brad Haller, a senior partner in technology consulting firm West Monroe's M&A practice. Private equity's leveraged buyout playbook is simply designed for more mature businesses.

"A lot of these smaller [AI] companies do not have the positive cash flow to be able to be invested in by a private equity firm that's going to put millions or billions of dollars of debt on their balance sheet that they'll have to service," Haller said.

The outlook for sustained datacenter demand backs private equity's investment thesis. Private equity views datacenters as "long-term safe havens for investments, even during turbulent times," said John Dinsdale, chief analyst and managing director for Synergy Research Group, in emailed comments.

"There has been an inexorable rise in the demand for datacenter capacity, driven by cloud services, social networking and a range of both consumer and enterprise digital services. The rise of generative AI has added a further major boost to demand," Dinsdale said.

Private equity-backed deals have accounted for 80% to 90% of datacenter transaction value since 2022, according to Synergy.

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The $16.13 billion acquisition of datacenter operator AirTrunk Operating Pty. Ltd. by Blackstone Inc. and Canada Pension Plan Investment Board was the largest private equity-backed datacenter transaction since Jan. 1, 2024.

Seven of the 10 largest private equity and venture capital investments in datacenters over the measured period came via rounds of funding, not M&A. While it would appear to buck the pattern of venture capital preferring riskier bets on AI startups, West Monroe's Haller suggested it could represent a bit of hedging by venture capital investors.

"A datacenter is a 'Steady Eddie' investment. You’re going to be able to model out a pretty predictable [internal rate of return] for that, and then you can make some more risk-forward bets in other places," Haller said.

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