Private equity's volume of software deals slowed as AI risks grew

The pace of private equity and venture capital investment in application software slowed for at least three consecutive years amid rising concerns about the risks advances in artificial intelligence could pose to software company growth.

Application software deals backed by private equity and venture capital firms totaled 3,665 globally in 2025, down 21% from 4,638 deals in 2024, according to S&P Global Market Intelligence data.

Deal volume declined for at least the third consecutive year in 2025, while aggregate deal value was the highest total since 2022 at $148.72 billion.

The median value of private equity transactions in the sector rose to $280 million in 2025, higher than the $241.8 million median recorded in 2022, the year ChatGPT was released, the data shows.

Alternative asset managers' exposure to the software sector was under the spotlight after an early-February sell-off of technology stocks. The market turbulence was the result of rising anxiety among public market investors that AI-powered automation could trim software company growth and erode valuations in the sector, said Scott Denne, a senior research analyst at 451 Research.

"What is happening is that they don't feel like they have clarity on how to price the risk of AI," Denne said.

Estimating exposure

Private markets managers have been grappling with those same uncertainties for years, according to Ares Management Corp. CEO Michael Arougheti.

"It is quite odd to us that the public markets have woken up to AI disruption as a theme. If you've been investing over the last five-plus years and you haven't been thinking about opportunities and risks created from technology and AI implementation, you've probably been asleep at the switch," Arougheti said in a Feb. 10 conference interview.

A week earlier, on Ares' fourth-quarter 2025 earnings call, Arougheti said investments in software companies accounted for about 6% of Ares' approximately $622.5 billion in assets under management.

Software exposure reported by private equity's Big Four listed firms in February ranged from 2% to 7% of AUM. Apollo Global Management Inc. estimated its exposure at the low end of that range, while Blackstone Inc. and KKR & Co. Inc. were at the high end. The Carlyle Group Inc. put its exposure to software at 6% of AUM.

Vintage risk

Private equity and venture capital exits from application software investments have accelerated in recent years, increasing to 605 exits in 2025 from 516 in 2024 and 421 exits in 2023, according to Market Intelligence data. The pattern mirrors a broader uptick in private equity exits since 2023.

The age of software investments that remain in private equity portfolios is becoming a significant factor in their vulnerability to AI disruption, said Nehal Raj, co-managing partner of TPG Capital LP, TPG Inc.'s private equity business.

"Where you will see more risk is in companies that were underwritten 2018, 2019, 2020 — prior to the advent of generative AI. And those [fund] vintages are more susceptible to risk and disruption," Raj said on the firm's fourth-quarter 2025 earnings call.

On the same call, TPG CEO Jon Winkelried estimated the firm's overall software exposure at 11% of AUM. Within TPG's private equity business, exposure is 18% of AUM, he said.

– Catch up on fundraising for private equity secondaries. – Read about private equity and venture capital deal value increasing in January. – Download a file of raw data from this story.

Upside, downside

Blackstone CFO Michael Chae said AI advances will result in a "range of outcomes over time" for software companies and their investors, both good and bad.

"We expect larger, well-entrenched businesses to be better protected and in many cases, beneficiaries of AI given the attractive moats and resources to invest in their own businesses and apply AI as a competitive advantage," Chae said.

Business moats that separate software companies from competitors are a key factor in which businesses are best positioned to sustain value — and perhaps even thrive — as AI roils the industry, said Dhaval Moogimane, hi-tech and software industry lead for consulting firm West Monroe.

Examples include software companies operating in highly-regulated environments that are difficult for upstarts to penetrate, Moogimane said. Software businesses with proprietary data or proprietary knowledge of customer workflows and business processes are also less at risk of AI disruption, but they have to stay on guard, he added.

"The reality is you can't sit still on that moat. You'll have to act on that moat, and extend your moat over time," Moogimane said.