贝恩+技术报告2023-英

Technology

Report2023ResetandReinvent:TheThrivingLandscapeofTech

InnovationAcknowledgmentsDavid

Crawford,

leader

ofBain

&

Company’s

GlobalTechnology

practice,anda

teamled

byDanaAulanier,

practice

director

oftheTechnology

Services

practice,prepared

thisreport.Bain

PartnersJohn

Beaumont,

BryceCrawford,

David

Crawford,

Matthew

Crupi,RishiDave,DavidDeming,

FrankFord,JonathanFrick,ArunGanti,PeterGuarraia,PeterHanbury,KarenHarris,SimonHeap,JoshHinkel,JensFriisHjortegaard,AnneHoecker,ChristopherJohnson,JordanLee,BrianKmet,DavidLipman,JustinMurphy,

RohanNarayen,BrendanO’Rourke,ChristopherPerry,BillRadzevych,

Gene

Rapoport,

MichaelSchallehn,

ChristopherSchorling,

Jen

Smith,BalajiThirumalai,

JFVan

Kerckhove,ColleenvonEckartsberg,andJueWang;

ExpertPartnersSyedAli,SanjinBicanic,BalaParameshwaran,Ted

Shelton,andVelu

Sinha;AssociatePartnersJamesBaird,Jay

Bhatnagar,Arjun

Dutt,

PeterHenle,andNiharNaik;Senior

Manager

Neha

Verma;VicePresident,DataScience

EricSheng;

andChiefExecutive

ofEnterprise

Blueprints

Neil

Mulhollandwroteits

chapters.TheauthorswishtothankBainPartnersAdamBorchert,BhaviMehta,andPaulRenno;AssociatePartnerTanveeRao;Senior

ManagersJamesCarlsonandRuchiSingh;Advisory

PartnerMikeMcKay;Managers

Yash

Damania,Aditya

Poonia,

andCollin

Skousen;

Consultants

James

Adams,GavinCosgrave,

CaroGonzalez,

ChrisMa,

Deeksha

Manjunath,

andDubem

Mbeledogu;

Associate

ConsultantsRamya

Ajjarapu,Kush

Amin,JoshuaChiang,HelenaEpstein,MistyLiao,

MyronMageswaran,AlexNielsen,andKitWiggin;PracticeDirectorsDanaAulanier,

LaurenBrom,andAlexSmyth;PracticeSenior

Managers

Elisabeth

Duffy

andTarun

Gupta;

Associate

Directors

ofPrimary

Research

MikeKatesandDawn

Kix;Leads

ofPrimary

Research

JPLiss

andChristopherMarguette;Bain

Capability

NetworkSeniorManagersSaurabhGuptaandNishatParveen;andJohnCampbell,JeffBauterEngel,AdamJones,andDavidSimsfortheireditorialsupport.Thisworkisbasedonsecondarymarketresearch,analysisoffinancialinformationavailableorprovidedtoBain&Companyandarangeofinterviewswithindustryparticipants.Bain&CompanyhasnotindependentlyverifiedanysuchinformationprovidedoravailabletoBainandmakesnorepresentationorwarranty,expressorimplied,thatsuchinformationisaccurateorcomplete.Projectedmarketandfinancialinformation,analysesandconclusionscontainedhereinarebasedontheinformationdescribedaboveandonBain&Company’sjudgment,andshouldnotbeconstruedasdefinitiveforecastsorguaranteesoffutureperformanceorresults.Theinformationandanalysishereindoesnotconstituteadviceofanykind,isnotintendedtobeusedforinvestmentpurposes,andneitherBain&Companynoranyofitssubsidiariesortheirrespectiveofficers,directors,shareholders,employeesoragentsacceptanyresponsibilityorliabilitywithrespecttotheuseoforrelianceonanyinformationoranalysiscontainedinthisdocument.ThisworkiscopyrightBain&Companyandmaynotbepublished,transmitted,broadcast,copied,reproducedorreprintedinwholeorinpartwithouttheexplicitwrittenpermissionofBain&Company.NetPromoter®,NPS®,NPSPrism®,andtheNPS-relatedemoticonsareregisteredtrademarks,andNetPromoterScore

,NPSx

,andsmsmNetPromoterSystemsm

areservicemarksofBain&Company,

Inc.,NICESystems,Inc.,

andFred

Reichheld.Copyright©2023Bain&Company,Inc.Allrightsreserved.TechnologyReport2023ContentsResetandReinvent:TheThrivingLandscapeofTech

Innovation2Value

Evolution56CreatingValue

inTech

ThroughouttheLife

CyclePreparingfor

Exit:ABuyer’s

MarketIsComingfor

Tech

AssetsAIInvestors:ActFast,ActWisely101520Technology

EntersItsPost-GlobalizationEraStrategicBattlegrounds262732You’re

OutofTimetoWait

andSeeonAIHowAIIsRecodingtheSoftwareBusinessModelGenerativeAIandCybersecurity:StrengtheningBothDefensesandThreats37414752Taking

theHyperboleOutoftheMetaverseTheUntappedValue

attheIntelligentEdgeAftertheChipShortage,FearsofaCapacityGlutAreOverblownOperationalTransformations585963687376DigitalInnovation:GettingtheArchitectureFoundationsRightTheTalent

ImplicationsofGenerativeAIHowEnterpriseSalesCanSuperchargeProduct-LedGrowthHowYour

RevenueCanGrow

FasterThanYour

SalesforceDecarbonizingTechnology

SupplyChains1ResetandReinvent:

TheThrivingLandscapeofTech

InnovationBy

David

CrawfordTechnology

thrives

oninnovation,

andtoday,

thesector

isina

period

ofrenewal

andreinvention.

Tech

ishealthy,

vibrant,andmoving

forwardassertively,

driven

by

strongglobaldemandandbroadinterest

innewtechnologies.Whatlookedlikeaslowdownwasactuallyareset.AftertheCovid-19spendingbubble,

demandslowed,

valuations

fell,andprofitabilitymattered

again.Thesector

responded,cuttingcostsandlaying

offthousands,thenbouncedbackquickly

withmarketcaps

near

peaklevels

again(Figure

1).Thisreboundrides

onoptimism.Technologyisincreasinglycentraltoeverythingwe

do—personally,professionally,andasasociety.Evenduringperiods

ofeconomic

uncertainty,

companies

continueto

investintechnology(Figure

2).LargelanguagemodelsandgenerativeAIrepresentthemost

significantdisruptionsincetheInternet.Theneedfor

resilience

insupplychains

is

creating

capacity

in

new

places.

Thesearetheinvestmentsthatwillpropelandreshapethetechsector

intheyearsahead.David

CrawfordLeaderofBain’sGlobalTechnologyPractice2TechnologyReport2023Figure

1:

ThetechnologysectorbouncesbackS&P

1500

aggregate

market

cap,

weekly

percentage

change300%Tech250200150Next-best–performingsectorWorst-performingsector1000January1,

2019January7,

2020January5,2021January4,

2022January3,2023Note:BasedonWednesdayclosingpricesSources:S&P

1500compositesectordata;Bain&CompanyFigure

2:

MostCIOsstillaren’t

decreasingtheirbudgetsPercentage

of

CIOs

who

say

that

their

budgets

are

flat

or

increasedJuly202187%August202280August202376Source:BainIT

DecisionMakersSurvey(July2021n=150;

August2022n=200;

August2023n=151)3Value

EvolutionCreatingValue

inTech

ThroughouttheLife

CyclePreparingfor

Exit:ABuyer’s

MarketIsComingfor

Tech

AssetsAIInvestors:ActFast,ActWisely61015Technology

EntersItsPost-GlobalizationEra20Value

EvolutionCreatingValue

inTechThroughouttheLife

CycleDrivingreturnsdependsonhowfardowntheroadyouareBy

David

Crawford,

Matthew

Crupi,

and

JF

Van

KerckhoveAt

a

GlanceInthetechsector,

investors

are

attracted

toyoung,

disruptive

companies

basedontheirgrowth

potentialAscompaniesandtheirmarketsmature,investorsexpecta

mixofgrowth

andreturnsMature

companieswitha

proven

trackrecord

instablemarkets

canexpect

slower

growthwhiletheirinvestors

are

closelyfocused

onprofitability

andreturn

oninvested

capitalUnderstandingwhereyourcompanyisinitslife

cycleandsignalingexpectationstotherightgroupofinvestorsisessentialfor

attractingthecapitalthatcompaniesneedtooperateOverthepast

five

years,

astechnology

companies

have

navigated

through

volatile

supply-and-demandshocks

(Covid-19,

supply

chainconstraints,

recession,

inflation)anduncertainty

onfinancing(highercostofcapital,closedequitymarkets),many

have

focusedongrowth

atany

cost.Theirattention

isshaped

by

thecommonbelief

that,intech,growth

mattersmost

increatingvalue

forshareholders.6TechnologyReport2023Thetruthismore

nuanced:Shareholdersreward

techcompaniesdifferently

basedona

company’scontext

andpoint

inthelifecycle.

For

more

maturecompanies,

theirreturn

oninvested

capital(ROIC)

canmatter

muchmore.

As

markets

mature,

theyalso

attractmore

conservative

investors,who

then

pressure

companiesto

turntoward

more

predictable,profitable

opportunities.

This

thenlimits

furthergrowth

andinvestment

inthebusiness

andattracts

a

newbreed

ofvalue

investorwhocares

about

stable

revenue

streams,reinforcing

thiscycle.Asmarketsmature,theyalsoattractmore

conservativeinvestors,whothenpressure

companies

to

turn

toward

more

predictable,profitable

opportunities.Whendetermining

a

company’s

value,

investors

often

turnto

totalshareholder

return

(TSR),

a

financialmetricthatindicates

thetotalamountaninvestorreaps

foraninvestment.

TSR

hasa

fewfundamentalfactorsthatmeasurestrategyandoperations(forexample,revenuegrowth,profitability,andcapitalefficiency);investorsentiment(multiples);andcapitalstructure(debt-to-equityratio,buybacks,anddividends).Theweightofthese

factors

differsascompaniesandtheirmarketspassthroughlifestageswithdifferentgrowthrates(see

Figure

1).•Early-growthmarketsmay

be

small,buttheyaregrowingfast,disruptingexistingindustriesorcreatingnewones.

Speedandinnovation

areessentialforrelatedbusinessesastheyestablishtheirmarketposition.RevenuegrowthandfutureprospectsdriveTSR,creatingvalueforventureinvestorswhoinvesttoscalenewchampions.•••Late-growthmarketsstillbenefitfromrobustgrowthastheyexpandandstabilize.TSRisbasedongrowth,withcreditforinitialprofitabilityasinvestorslook

forgrowingcompanieswithproveneconomicviabilityandscalableprofitability.Maturemarketsarerelatively

stable,withsingle-digitgrowthexpectations.Anincumbent’ssharepositionmay

varyby

onlya

fewbasispointsa

year.

InvestorsfocusonprofitabilityandROIC.

Growthislessimportant,valued

onlyifit’s

efficientlyfunded.Asset-richlegacy

markets

may

be

fightingthegravitational

pullofshiftingcustomerneeds.Investorsexpecthighlypredictablereturnswithlowtonotoleranceforrisk.Onceacompanyiswithinagivenstageofmarketmaturity,itisimportanttomaximizethesourcesofTSR

specific

tothatphase.Althoughthese

phases

seem

logical,too

manycompaniesinlate-growthandmaturemarketsdownplay

theimportanceofprofitabilityandROIC.

Growth

stillmatters,butprofitabilityandcapitalefficiencymay

createmore

value.7TechnologyReport2023Figure

1:

Thecatalystsfor

totalshareholderreturns

differ

according

toa

company’s

stageinthelifecycleMarket

maturityEarly

growthLate

growthMatureAsset-rich

legacyHistoric

total

shareholder

return

(TSR)

catalystsProfitabilitygrowthMultiplegrowthRevenue

growthDividedpayoutSharecountContributorsto

TSRDetractorsfrom

TSRTSR

based

on

futuregrowth

prospectsTSR

based

ongrowth

and

withcredit

for

initialprofitabilityTSR

based

onprofitability

growthand

capital

returnsTSR

based

oncapital

returnsto

shareholdersStrategyStrategyStrategyStrategySellsharesandbuild

debt

to

fundrapidgrowthBalanceprofitabilityand

reinvestmentDriveoperationalexcellence

and

ROICin

coremarkets,returning

excess

cashto

shareholdersManageassetstodeliverpredictablereturnsExamplesExamplesExamplesExamplesPalo

AltoNetworks2010–2022AmazonWebServices2011–2015Cisco2012–2022Digital

EquipmentCorporation(DEC)1991–1998Palantir2018–2022Broadcom2012–2022Microsoft2008–2015CrowdStrike2017–2022Oracle2009–2022NetApp2010–2019Snowflake2019–2022Note:DECstartdateisyearoffirstreportedannualloss,andenddateisyearofCompaqacquisitionSources:S&P

CapitalIQ;Bainanalysis8TechnologyReport2023Companies

inlate-growthandmature

stages

shouldbe

improving

theefficiency

ofgeneratingrevenueby:••••••rethinkingwhichmarketsaremostattractive;reducingportfoliocomplexityandadoptingdesign-to-valueprinciplestomatchcustomerneeds;revisitingways

ofworkingtoimproveproductivity(includingAIandautomation);deployingnewbusinessmodelsbasedonasset-lightsolutions;pursuingM&Awhereoperationalsynergiesareclear;andreinvigoratingaleancoretoensurenewgrowth.Moving

back

upstream

to

higher-growthphases

can

be

extremelydifficult.

Few

tech

companies,apartfrom

Apple,

have

produced

successful

second

acts

inunrelatedadjacencies,

butAdobe,Microsoft,Nvidia,

andothers

have

renewed

themselveswithanupstream

shiftby

reigniting

andmodernizing

thecore.

Late-growth

companies

suchasAmazon

have

also

successfully

unleashedEngine2

catalysts,

generating

a

second

wave

ofgrowth.Interest

ratehikes

have

increased

thecost

offunding,

so

shareholdersare

watching

returns

oncapitalmore

carefully

andrewarding

companiesthatunderstandwhento

reinvest

inthebusiness,whentouse

capitalmore

efficiently,

andwhento

return

capital.As

businessesgrow,

theirinvestorsandvaluationstendtoreflectthematurityoftheircorebusiness.Sometimes,

smaller,

less

mature

businesses

trapped

withinthebiggercompany

are

not

properlyvalued

by

themarket—afactthat’s

often

pointed

outto

boards

by

activistinvestors

ratherthanmanagement.Portfolio

restructuring

canunlock

value

andhelpmatch

these

businesses

withtherightinvestments.Companies

shouldbe

proactive

inshapingtheirinvestor

base,targeting

thetype

ofinvestors

theywantandtailoringcommunicationstothem.Amazon

didthisbysignalingits

intent

todeprioritizeprofitinfavor

ofcontinuallyreinvestinginthebusiness.Byclearlycommunicatingthesepriorities,Amazonwasabletosetexpectationsandattractgrowth-orientedinvestorswhosupportedthisreinvestmentratherthanconservativeinvestorswhowouldnothave

rewardedthisstrategy.To

maximize

value,strategies

forgrowth,capitalallocation,

andinvestorrelationsshouldchange

overtimeasmarketsmature.Shapingtheinvestorbaseandcommunicatingclearlytoset

expectationsareessentialtoensureinvestorsupport,whethergrowingthecorebusiness,searchingforanewengineofgrowth,unlockinghiddenassets,orimprovingcapitalefficiency.

Understandingtherolesamongmarketmaturity,

investorexpectations,andsourcesofTSRisessentialtodelivershareholdervalueateverystepofthejourney.9Value

EvolutionPreparingfor

Exit:ABuyer’s

MarketIsComingfor

Tech

AssetsAbacklogofportfolioinvestmentsislikelytocometomarketwhendealactivitypicksbackupBy

Brian

Kmet,

David

Lipman,

Christopher

Perry,

Jen

Smith,

and

Colleen

von

EckartsbergAt

a

GlanceReducedexits,extendedholdtimes,andsteadydrypowderreservespointtowardanincomingwave

oftechassetexitsthatwillcreateacrowded,competitivebuyer’s

marketFirmsthathave

prepared

tostandoutwillfare

betterthanaverage,

whileothersmay

struggletosellmatureassetsintheirportfolioThevolumeoftechnologydealshasslowedsincemid-2022fora

numberofreasons,includinglimiteddebtavailability

amidrisinginterestratesanddeclinesinassetvaluesthathave

leftbuyersunableto

meet

sellers’

askingprices.

Successful

deals

have

reliedongreaterequity

contributions(withexpectations

to

refinance

later),

partial

equity

sales

to

fundgrowth,

anda

greater

proportion

ofadd-onsratherthanstandaloneorplatformassets.Overall,thepaceoftechdealssincethethirdquarterof2022continuestobe

slow,

inlinewiththebroaderdealmarket.Exits

arealso

down—on

average,

about

$20billionper

quarter

inthefirst

halfof2023

comparedwith$107billionperquarterinthefirsthalfof2021and$75billionperquarterinthefirsthalfof2022.Agrowingbacklogofdeals,includingmorethan$700billionoftechassetspurchasedbetween10TechnologyReport20232018and2021(see

Figure

1),

hasledtolongerholdtimesoftechportfoliocompanies.In2023,nearlyhalfoftechportfoliocompanieshave

beenheldformorethanfouryears,and15%have

waitedmorethansixyears.Forthefirst

timesince2012,

morethan40%oftechportfoliocompaniesarebeingheldformore

thanfouryears

(see

Figure

2).

Thisbacklog

oflong-heldportfolio

assets

isgrowing

more

quicklythanthemountainouslevelofdrypowderthatisholdingsteady,

whichwillcreateabuyer’smarketwhenactivitypicksup(formore,readBain’s

“StuckinPlace:Private

EquityMidyearReport2023”).Thebacklogof

long-heldportfolio

assets

isgrowing

morequicklythanthemountainous

level

of

dry

powder

thatisholdingsteady,

whichwillcreate

a

buyer’s

market

whenactivitypicks

up.Figure

1:

Tech

dealshave

slowed

over

thepastyear,

anda

backlogofdealspointstoa

comingbuyer’s

marketFollowing

buyout

frenzy

in

2020–2021,exits

have

slowedA

backlog

of

deals

will

come

to

market

when

demandrecovers,

including

more

than

$700

billion

of

assetsthat

traded

between

2018

and

2021Globaltechsector

buyoutexitvalue,in

billionsof

USdollars(2018–2023YTD)Globaltechsector

buyout

deal

value,in

billionsof

USdollars(2018–2023F)315130112101Likely

to

tradewithinthe2098582nextthreeyears79158149143575852113463625

25

242526232013

14Q197Q1Q1Q1Q1Q1201820192020202120222023F201820192020202120222023AnnualizedNotes:

YTDafteryearstandsforyear-to-date;FafteryearstandsforforecastSource:Dealogic(asofJuly5,2023)11TechnologyReport2023Figure

2:

Nearly45%

ofcurrenttechportfoliocompanieshave

beenheldfor

longerthanfouryearsNumber

of

tech

buyout-backed

companies

by

time

in

portfolio

(global)4K3Time

inportfolioLongerthansixyearsFourtosixyears2Zerotothreeyears10201243%201340%201438%201537%201635%201732%201829%201929%202030%202129%202233%2023Percentageheldforlongerthanfouryears44%Note:DataaggregatedbyyearofinvestmentandtimeinportfolioSource:PitchBook(asofMarch31,2023)How

to

add

valueWithmultiplestrendingdownwardandacompetitivemarketonthehorizon,investorsshouldfocusonaddingvaluetoexistingassetsbygrowingearnings,redefiningoperationalprocessesthatmayhave

beenignoredforawhile,raisingefficiencywithnewtools,andseekingnewareasofgrowth.Withinsoftware,we

seeseveralinterdependenttrends.•Focus

on

margin

improvement:

As

marketvaluationshavedeclined,investorshaveshiftedfocusfromgrowthatanycosttorewardingprofitability.To

expandmargins,companiesneedtobuildscale,increaseautomation,andboostproductivity—allwhilemanagingthecostsofgrowth.Operationalmetricsandbenchmarksbecomemoreimportantascompanieseliminatelow-valuework,automateless-complextasks,andexploreoffshoreopportunities.•Address

weaknesses

in

the

go-to-market

model:

Aslowingeconomyhasrenewedthefocusonsalesandmarketingcapabilities.Bysynchronizingsales,marketing,ops,andproductfunctions,companiescandesignfocused,

repeatablesalesplays.

Additionally,theemergenceofproduct-ledgrowthletssoftwarecompaniesengagecustomerswitha

self-servicemodel(formore,readtheBainBrief“WhatItReallyTakesto

DevelopProduct-LedGrowth”).12TechnologyReport2023••Evaluate

AI-driven

disruption

and

efficiency

improvements:

TherecentboominconsumerAIusageandbusiness-to-businessapplicationshasledtoavarietyofnewusecases,specificallyintwo

keyareas:R&D

andenablementtools.PortfoliocompaniesareevaluatingthepotentialofgenerativeAI,andtheyarefocusingtheirR&D

effortsonareasofgrowthwhilepullingbackondistractions(formore,seetherelatedchapterinthisreport,“A

IInvestors:ActFast,ActWisely”).Consider

new

growth

vectors:

Companies

are

developing

thenextphase

oftheirgrowth

strategies,whichshouldincludeadjacencies,newregions,andbuyandbuildthroughM&A.When

to

add

valuePortfolioactivismpaysoffatanypointintheinvestmentprocess,fromearly-stageduediligencetopreparingforexit.We

have

seenbetter-than-averagereturns,uptothreetimesmultipleoninvestedcapital(MOIC),withpost-acquisitionactivism(see

Figure

3).Thebiggestreturnscomefromengagingearly,

asclosetoday

oneaspossible,aswellasengaginglater,withplanstomovefromgoodtogreatbeforeanexit.Figure

3:Post-acquisitionportfolioactionscandeliveruptoa

threetimesmultipleoninvestedcapitalAverage

multiple

on

invested

capital

for

investments

by

type

of

effort3.02.52.0Industryaverage—Diligence(pre-acquisition)199Post-acquisition84DealcountSources:Baincoinvestmentdatabase;BainRevenueSystem13TechnologyReport2023•Engage

early

to

strengthen

capabilities.

Setting

strategy

alongwithsubstantial

support

incapability-levelexecutioncanimproveearningsandboosttheexitprice.Oneexampleofaddingvaluesoon

afteracquisitioncomesfromasoftware-as-a-servicecompanyofferingcriticaldataandcommunicationsITsoftwareforbusinessclientsthatwantedtodevelopa

plan

for

efficient

growth.

The

companystarted

by

identifying

prospects

anddeveloping

a

channelstrategythatshiftedfocustoitshighest-priorityaccounts.Amongotheractions,thecompanydiagnosedsalescoverage,acceleratedthesalespipeline,andassesseddiscountingandpriceincreasepracticesinordertomaximizerevenue.A

detaileddiagnosticacrossmarketingchannelshelpeditdifferentiateitsmessageandtargettherightaudience.Online,itranstructuredA/Btests

andimprovedtheway

itmeasuredleadtrackingandrevenueprojections,usingbenchmarksfrom

OPEXEngineto

compareperformance

across

industries.

Through

these

actions,

thecompanyidentifiedopportunitiesto

raiseearningsby

about$40million,mostlythroughpriceincreasesandnewmarketleads.•Engage

later

with

targeted

actions.

For

companiesalreadyperforming

well,

strategicinvestmentsthatraise

theirgamefrom

good

to

greatcandeliver

thegreatest

punch—on

average,a

50%increaseinMOICwithinayearoftargetedengagement,mostlyfromtheworkleadingtoasuccessfulexitatanattractiveprice.For

example,

oneeducational

technology

company,a

leadingprovider

ofonlinetest

andassessmentsolutions,hadalreadyachievedsignificantorganicgrowthbasedonthestrengthofitsproduct.Aninconsistentgo-to-marketapproachthatincludedinvestingtoomuchinaccountsunlikelytodeliverthenecessaryreturns,however,preventedthecompanyfromachievingitsfullpotential.Thecompanyimproveditsgo-to-marketstrategyto

capitalizeonitsstrongproductadvantageandto

gainmarketsharebeforeitssale.ItassessedthecompetitivelandscapeandredefinedM&Aobjectivesto

articulatea

pathway

to

furthergrowth.Pushinga

fasterexecutionhelpedthecompanygetmoreoutofitsmarkettractionandtrajectory,whichboostedequityvalue

duringthesalesprocess.Theseactionstookanalreadyremarkable7timesMOICatthestartoftheengagementandraiseditto

14

times

atexit.A

newsegmentation

ofcustomers

offeredclarityonservice

andbuyingbehaviorfor13,000

potentialcustomers.Thecompanycrystallized

itsstrategy,

revisitedideasforadjacencyandacquisitions,andimprovedcompetitivedynamicstocreatetherightdialogueforexit.Withintwo

years,

theprivate

equity

ownerscompleteda

partial

sale

ofthebusiness,keepingasizablechunkthemselvesgiventheirnewfoundconfidenceinthebusiness.Investorsandportfoliomanagersthatdon’taddsignificantvaluetotheirsoftwareassetswillstruggletosellamongagrowingslateofmatureassets.Techinvestorsthathave

donetheworknecessarytoimproveearningsaremorelikelytosucceedintheupcomingcompetitivebuyer’smarketwithassetsthatstandout.14Value

EvolutionAIInvestors:Act

Fast,

Act

WiselyLowerbarrierstoexperimentationopenthedoortomoredisruption,butincumbentshave

advantages,tooBy

Sanjin

Bicanic,

David

Lipman,

Christopher

Perry,

Gene

Rapoport,

and

Jue

WangAt

a

GlanceInvestors’enthusiasmfor

artificialintelligenceishigh,withAIandmachinelearninginvestmentsleadingventuregrowthinthefirsthalfof2023Across

industries,AIshouldincreasetheproductivityofknowledgeworkers,

andsoftwarecompaniesalreadybenefitfromAIcodingassistantsInvestorsshouldbeassessingrisksandopportunitiesacrosstheirportfolios,understandingwheretechnologywillcreatenewadvantagesandwhereitmightleadtosharelossInvestmentsintechnologyflockedtoearly-stagegenerativeAIcompaniesinthefirsthalfof2023,ledbyMicrosoft’s$10billioninvestmentinOpenAI(see

Figure

1).Withthepotentialforsweepingchanges

tothetechsector,investorsarerightlyafraidofthewaysthatgenerativeAItechnologiescanaffectcurrentandfuturetechassets.Theexcitementraisesanumberofpossiblyov