Much of the fear and hope surrounding AI centers on its ability to save on labor costs. Whether it's Jamie Dimon's prediction of a three-and-a-half-day work week, a chorus of CEOs saying AI will help employees do their jobs more efficiently, or a study predicting potentially catastrophic white-collar layoffs, the focus is on efficiency.
But for some investment firms, cost cutting is practically a forbidden word.
“The mandate across the company is not to talk about using AI or technology resources to reduce costs or improve efficiency,” Tide Rock CEO Ryan Peddicord told Business Insider.
Peddicord said the company has had AI engineers for two years, but their goal is to grow the business, not shrink it.
The San Diego and New York-based firm invests in smaller companies than typical private equity giants and doesn't use debt to fund acquisitions. It manages $1 billion, including current investments and dry powder. The company has made more than 50 acquisitions with the goal of growth beyond just financial engineering.
“The foundation and principle of our company is to focus on being the growth engine for these businesses, and that's where we want to focus our resources,” Peddicord said.
Peddycord spoke to Business Insider about how the company's use of AI fits into its business model and gave some real-world examples of how AI is having an impact.
Tidelock model
The company acquires businesses run by founders when they have an “opportunity for change,'' such as when the founder is about to retire or a family member becomes ill. This means they have far more protection for the assets they sell than regular financial investors.
They will then focus on growing those companies. That means Tide Rock will hire a chief marketing officer and a chief revenue officer who “know how to run a business,” rather than a typical private equity partner, Peddicord said.
Mr. Peddicord said that since Tidelock was launched 13 years ago, the company's corporate organic revenue has grown 24% annually. (He also said the company lost money on only one trade during this period.)
They're looking for ways to monetize what they've built over time, but what's really just as important to them is that the brand and heritage and employees can continue to some extent without them,” Peddicord said.
For these founders, the growth story is an important reason for choosing to sell to Tide Rock. So while arguments about using AI to reduce employees and costs are anathema in their sales pitch, AI for growth is a selling point.
While AI is becoming an integral part of the company's strategy, it has been doing this for years, even before the advent of LLM, and has operational best practices stored in a library of over 100 videos and 500 pages of documentation.
“The CEO of a portfolio company has access to certain information, the administrator has access to other information, the vice president of sales has access to information,” Peddicord said.
AI tools are another operational best practice the company shares across the companies it manages and tracks in a library of 100 videos and 500 pages of documentation.
The company also has other focused resources in-house, such as a focused talent acquisition team and a focused head of marketing and revenue, to act as a “bridge” to get companies to a place where they can operate on their own.
This creates a world in which, for example, the company can integrate customer relationship management systems in “30 to 45 days” instead of “12 to 18 months,” Peddicord said.
How will AI adapt?
The company is happy to use third-party applications that can reduce costs, but Peddicord says it's a waste of its own resources.
“I believe everyone will be so focused on cutting costs that they will take away all the low-hanging fruit from third parties,” Peddicord said. “So we're trying to invest our money to build something that other people are making, and investing more money into that is probably not the right place to spend our money.”
The first tool they invested in was finding companies to acquire. Peddicord said that at the sub-$10 million EBITDA level the company invests in, the data on platforms like Pitchbook and Crunchbase is “very incomplete,” so the company has invested “significantly” in ways to first find and pitch to these companies.
Peddicord said the company quickly realized that this ability to discover and communicate a lot of “non-public information” about companies was “very important” for portfolio companies when searching for new clients.
Peddycord gave the example of identifying potential customers for a manufacturing portfolio company selling to the government, aerospace, or defense industries.
“If Blue Origin wins a large contract, there is some public information that they can collect to determine why they won the contract, and we can also reverse engineer what subcomponent parts and services are needed to create it,” Peddycord said.
From there, Peddicord said the company's portfolio companies could “step in sooner” to provide manufacturing support for subcomponents.
“In high-growth areas like aerospace and defense, they work as hard to find new qualified suppliers as we do to find new customers,” Peddicord said.
