Before Michael Kumin invests in a company, he needs to feel comfortable holding it for as long as a decade.
As a managing director at the growth-focused private equity firm Great Hill Partners, Kumin is now assessing how AI will shape its existing portfolio and future investments at a moment when global venture investment is rebounding.
We recently met with Kumin at the Jefferies Private Internet Conference in Los Angeles, where we explored his vision for AI’s future and its impact on growth investing within private equity.
How is AI changing your approach to investing?
MK: The question we are facing right now is not just how we can incrementally influence our businesses to improve them next year and the year after, but what the fundamental influences we can bring to bear over the next decade are. That’s a pretty challenging question.
If you ask what these companies will look like in 2034, you must challenge yourself to reimagine the consumer journey. Take search for an example. Will people be typing into a search box or talking to a voice-assisted agent sitting on their shoulders? You must be thoughtful and creative and consider every investment’s risks and opportunities.
Does the growth of AI mean you need an added level of diligence?
MK: We now have an AI-specific conversation on every investment we make. Certainly, in anything truly digital, you must be a prudent investor and include that in your calculus. So, we have dedicated slides on AI in every investment deck and every presentation, and the topic comes up in just about every discussion.
Do most of your investments focus on companies starting to leverage AI?
MK: We are trying to find good, solid, high-growth businesses. We are trying to identify where we can accelerate their go-to-market or product development and where there may be risk in the durability of their business model. So, we are balancing the pros and cons at every step.
Do you see more competition now? Do you see a narrowing of the bid-ask spread?
MK: Yes, that has started to narrow. I think you are just seeing a compression – the ask is coming down a bit, and the bids are coming up. Some of that is based on the cost of capital perception of where rates are going, and some of it is due to the sense that the economy is settling out.
You have several great companies in your portfolio. As bids increase, how are you approaching liquidity?
MK: That’s been the question in digital commerce and consumer-facing assets. I think you saw companies return to basics, focus on unit economics, and focus on operating leverage. So, within our portfolio, that’s been the focus for the last couple of years. Almost to a company, we expect to have the highest EBITDA performance in each company’s history. As performance continues to show, I think the buyers will come in and start to get back to normalized multiples.
Which parts of the internet spaces is Great Hill most focused on?
MK: As AI becomes more of a disruptor, the question is, what impact does it have on company valuations? Is it an accelerant where companies are worth more because AI drives down their cost structure and the company becomes more profitable? Or is there the potential that AI causes more risk in business models?
There’s a question of whether what is old is new. By that, I mean that companies that sell physical products will be hard to displace. There is a renaissance of some of the older school products and business models based on a change in valuations, and those businesses might actually have some appeal because AI disrupts them less.
