Software providers must help create a competitive edge with AI: private market CTOs

Private market firms are increasingly using artificial intelligence (AI) to automate menial tasks to save time and costs, but the top priority for many private equity and VC chief technology officers (CTOs) is developing proprietary AI solutions that create a competitive edge.

This means that while CTOs still pay for third-party software to save time and cost, building AI infrastructure is often done in-house, even at great cost. In fact, it takes up the lion’s share of firms’ technology spend.

'We believe AI is a no-regret move. We are investing significantly into an AI sourcing brain, where we are applying machine learning to teach the system and feed it with 40 years of our intellectual property (IP),' says Timothée Dandurand, CIO at Canada-based private equity firm Novacap.

San Francisco-headquartered VC firm Signalfire has also developed a proprietary AI-powered platform, Beacon AI, which they offer to their portfolio companies and founders as well. 'While we broadly see increased spending in portfolio monitoring, CRM, and regulatory compliance tools, for us, the bulk of our spend will remain focused on AI-driven sourcing, as well as founder support,' says Ilya Kirnos, CTO at Signalfire. 'For over a decade now, we have been hiring PhDs in data science and AI for this purpose,' he adds.

Signalfire’s aim is to scale and expand Beacon AI’s capabilities, specifically for parsing unstructured data to match founders with the right investors and customers, while keeping data siloed, generating qualified customer leads, building better sales intelligence, and helping founders scale revenue.

Similarly, Josko Grljevic, CTO of UK-headquartered Mayfair Equity Partners, says, 'We rent and buy things like CRM, accounting, and ERP systems that give us no differentiation. But we’re building data and AI capability in-house to put us ahead of others. The key is not just automation but investing more CapEx and OpEx into building insights that do not exist in the market to improve the quality of decision-making.'

From the perspective of a portfolio company backed by private equity, the philosophy is similar. Abhesh Kumar, CTO of business advisory firm Springline Advisory says, 'We invest in proprietary development when it enhances how we create value for clients, for example, the analytics frameworks that reflect the idiosyncrasies of a client’s growth journey or workflow models that capture or philosophy of engagement. It makes little sense to reinvent the wheel in areas where proven third-party platforms deliver resilience and efficiency.'

Data and cybersecurity must go hand in hand with AI

Data and cybersecurity are also common focuses that have grown in importance alongside AI innovation. Data is the raw material in any AI system or tool, says Ilya at Signalfire. 'We continue to expand our datasets, licensing new sources and developing pipelines that improve accuracy and coverage of talent, company, and market signals,' he adds.

Timothée at Novacap explains how AI, data, and cybersecurity go hand in hand and take up most of the firm’s technology spend. ‘We cannot skip investment in either of these three: data, AI, and cybersecurity. Data is increasingly available in our portfolio, firm, and the market. The more data you have, the smarter you need to get, so we leverage and develop AI solutions to analyze and summarize all the data available. Consequently, risks also increase as the cybersecurity attacks we are facing become more sophisticated, with AI being leveraged by bad actors,’ he says.

The firm has invested significant resources into a password-less zero trust architecture, which Timothée says is top of mind for their investors. ‘Everything is 100% cloud-based and there is no more corporate perimeter to attack, no more passwords to phish. We also invest heavily in cyber threat intelligence (CTI) capabilities, which actively scan the open web and the dark web for threats.’

This emphasis has shaped how Novacap selects its software providers. ‘Every legacy technology vendor we had that couldn’t play within this framework was replaced,’ he adds.

CTO Josko at Mayfair Equity Partners also says, ‘We believe in building upon a compliant cybersecurity framework. Compliance isn't just a burden, but operational excellence. We believe that integrating compliance, security, and data governance from the start helps to create a competitive advantage.

‘Among the three areas that will see increasing technology spend in our firm, aside from client-facing platforms and data and analytics infrastructure, cybersecurity and identity management is a non-negotiable,’ says Abhesh.

Balancing cost discipline and innovation

AI requires large amounts of investments and may not have immediate ROI, so it has become even more crucial for CTOs to balance cost discipline with investment in potential innovation. A report by MIT found that 95% of organizations are getting zero return despite $30–40bn in enterprise investment into GenAI.¹

And returns are important to investors, who have high expectations. ‘Investors expect standardized compliance, reporting, and data security with no margin for error. These are areas where scale and predictability matter most, and where technology partners are judged on their ability to deliver consistently,’ shares Abhesh.

The CTOs we spoke with have put in place cost discipline measures to mitigate risks, while still maintaining a strong budget for building in-house proprietary AI capabilities.

Prioritization is key when deciding between paying for affordable third-party solutions versus spending extra time and budget to build them in-house.

‘A proprietary AI platform is our core strategic moat, not a side project. Building in-house is expensive, but it’s also durable as those investments compound over a decade, whereas vendor contracts don’t,’ Ilya at Signalfire says. He shares that the firm licenses datasets or uses specialized third-party tools when it makes sense, but anything that touches the core of sourcing, diligence, or portfolio support is built in-house.

Another thing Novacap has done is to centralize everything into a service bureau desk and create a business and market intelligence team to run it. ‘We centralized all our sources, so that rather than having 60 licenses for three sources, we have three licenses for 60 sources. We reversed the model to allow us to tap into a lot more sources. We then leverage specialized talents like market researchers and data scientists to drill into those sources and use those platforms to service the entire firm,’ Timothée says.

Being flexible with the needs of the company is also a way to manage costs. Niccolò Sanarico, Partner and CTO at Italy-based private equity firm Primo Capital, says, ‘We run on a tight budget with respect to new tech, but we experiment with a best-of-breed approach, integrating the best possible provider for each specific problem we are tackling. Often, we start with in-house prototypes to fully understand the need and the ideal solution, before deciding to commit either to a custom-made solution or a market product.’

In addition, Josko of Mayfair Equity Partners believes that one key challenge in many organizations is technical debt, so not adding on new technologies on top of technical debt helps to control costs. Technical debt incurs when software developers of technology units choose easy or quick technologies to solve short-term problems. ‘A priority of tech spend must be dedicated to servicing technical debt to enable faster progress. When technical debt accumulates, it becomes even more expensive to maintain,’ he adds.

The inability to integrate with current tech providers is a big cause of technical debt, so some CTOs prefer software providers that offer services that can work with other legacy systems efficiently. Abhesh of Springline Advisory says, ‘Many of the firms we have acquired have built up a mix of legacy systems, so the real test of a software partner is their ability to integrate into a multi-tenant environment rather than just selling a standalone tool. The strongest vendors are those who emphasize data portability, open APIs, and security, because software on its own does not create value. We continue to evaluate partners on their ability to evolve with us.’

Defining and measuring the competitive edge

Measuring competitive edge can be challenging. Primo Capital’s CTO Niccolò believes this can be measured with KPIs like how often the firm gets a lead at the right time compared with their competitors. However, sometimes these show up as second-order indicators that happen after the fact. ‘We keep track of how many deals we bid for but lost to competitors, as well as the number of deals we see too late.’

In the same vein, Ilya says that Signalfire focuses on core business outcomes that demonstrate tangible impact on the investment process. It tracks metrics like the adoption rate of investors, as well as the impact of sourcing differentiated investments that the firm wouldn’t have seen otherwise. 'We also look at how the tool has helped our portfolio companies hire, grow, and succeed. We’ve helped founders fill hundreds of critical executive, engineering, and GTM roles, and generated customer pipelines that drive millions in revenue growth,' he adds.

Abhesh at Springline Advisory says that the most successful platforms to him deliver on three tests: efficiency in terms of time saved on tasks like due diligence; insights into performance and risks; and resilience to keep up with new regulations and security demands.

Interestingly, Novacap’s CIO Timothée says that he evaluates software providers by their posture toward cybersecurity too. ‘If our software providers encounter cybersecurity incidents, this can be historical or present, we closely observe their reaction. If there is poor communication, as well as low visibility and transparency, we might terminate their agreement even if it doesn’t impact us. It goes back to how much we prioritize cybersecurity,’ he says.

Other common metrics that CTOs measure are the adoption rate of AI tools, which can be measured in time spent per platform and number of prompts, time saved on sourcing deals, as well as the rate of errors.

Ultimately, sustainable AI innovation and adoption in private equity and VC hinges on strategic and selective investment, being flexible, as well as robust measurement. To win over CTOs, software providers must be able to show value-add solutions that ultimately create a competitive advantage for client firms, demonstrated by positive business outcomes.

Josko Grljevic is Chief Technology Officer at Mayfair Equity Partners, a private equity firm based in London with £2bn in assets under management (AUM). The firm targets investments in growing digital businesses in the UK and internationally.

Timothée Dandurand is Chief Information Officer at Canada-based private equity firm, Novacap, which has CAD 14bn in AUM. Novacap invests in mid-market companies primarily through buyouts in the industries, technology, digital infrastructure, and financial services sectors across Canada and the US.

Ilya Kirnos is co-founder, managing partner, and Chief Technology Officer of VC firm Signalfire, which has around $3bn in AUM. He predominantly invests in Seed to Series B companies in enterprise infrastructure and developer tools.

Niccolò Sanarico is a Partner and Chief Technology Officer at Primo Capital, an Italy-based private equity firm with €502mn in AUM that invests in companies in the digital sector, the space economy, and health technology companies across Italy and Europe.

Abhesh Kumar is Chief Technology Officer at Springline Advisory, a private equity-backed financial and business advisory firm built by and for the middle market.

_{1 https://mlq.ai/media/quarterly_decks/v0.1_State_of_AI_in_Business_2025_Report.pdf}

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