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Companies look to sell off assets to pay for AI investments

Instead of selling off assets, some organizations are using private equity funding to increase investments in AI, adds Claire Milligan, CEO of cloud cost optimization firm Aimably. In some cases, companies are turning to “creative” funding options, including private credit and so-called continuation funds to pay for AI projects that have not yet generated revenue growth, she says.
“In private markets, investments in AI projects are seductive to equity investors as a justification for cash infusion to their holdings without the need to sell off assets,” Milligan says. “By capitalizing these projects as research and development, investors open the door to new sources of funding for existing portfolio companies, such as private credit or a transition to new fund vintages, without requiring investors to demonstrate value creation success to public markets.”
The danger to investors and companies, however, is a continued lack of revenue from many AI projects, she adds. “Reinvestment activities into existing portfolio companies are necessary as these companies’ revenue performance has been lacking,” Milligan says. “If portfolio companies cannot reduce these projects to revenue engines, more recent fund vintages have a strong potential to deliver poor returns.”