AI is rewriting the rules of the capital game, two universes are about to merge

a16z investor partner Troy Kirwin offers a highly disruptive prediction in his latest analysis: Starting in 2026, venture capital (VC) will rapidly erode and eventually integrate with private equity (PE). AI is causing two previously disconnected capital chains to collide head-on.

Over the past decade, the ecosystems, strategies, and worldviews of VC and PE have been completely different:

• VC: San Francisco, tech-native, betting on exponential growth, inclined to burn money for scale
• PE: New York, cash flow prioritized, optimizing traditional industries, large teams, process-intensive, conservative

They are not competitors but exist on “different planets.” But as AI rapidly materializes in 2024–2026, these two planets are inexorably approaching each other.

(Source: X)

🤖 Why now? Why AI?

Three years ago, AI was just a “tool to improve a bit of efficiency.” But after 2024–2025, three fundamental changes have emerged:

1. AI suddenly makes “untouchable” industries conquerable

On-site services, construction management, accounting, outsourcing, cleaning, IT support, recruitment—all these industries used to have thin margins, low IT budgets, and high manual labor, therefore:

• SaaS was hard to sell
• Automation ROI was not obvious
• Market entry was difficult regardless of size

Now, it’s different: AI has directly rewritten the cost structures of these industries, elevating productivity curves for the first time.

This means: All traditional service industries can be re-done. Industries can go from 0 to 1 again.

🔥 VC and PE are merging fiercely along three paths

① PE is becoming the “fastest commercialization channel” for AI startups

PE holds hundreds or thousands of traditional companies with stable cash flows, clear processes, and many manual steps.

When AI can significantly reduce costs and increase efficiency: PE can deploy at scale across entire portfolios with a single click.

This offers a huge entry point for AI startups: From “knocking on each customer’s door” → “upgrading hundreds of companies in one go.”

VC firms watch jealously, PE firms are also reaping benefits, and naturally, they are getting closer.

② PE’s portfolio becomes an “opportunity menu” for entrepreneurs

In the past, entrepreneurs relied on “insight, market understanding, matchmaking needs” to find directions. Now, almost no thinking is needed:

PE’s investment portfolio pages themselves are a list of industries that AI can transform.

Where labor is intensive, where efficiency is low, where automation is lacking—entrepreneurs can directly seize opportunities from the asset side.

This is an unprecedented “reverse entrepreneurship” model.

③ VC-backed AI companies are no longer just selling software—they are starting to acquire companies

This is the most critical point and the core logic of “VC swallowing PE.”

VCs have realized:

• Selling SaaS → slow growth
• Building platforms → fierce competition
• Acquiring traditional industries and transforming them with AI → immediate profit margin, scale, and moat improvements

Thus, a new model has emerged: AI-native service conglomerates.

These companies develop technology while acquiring traditional industries, integrating the entire business chain, each link achieving 30%–70% cost reduction, significantly boosting profit margins.

This is no longer VC as we know it, but a tech-driven version of PE.

🎯 2026: Two universes merge into a super-capital system

Kirwin said a very classic phrase:

“In the past, VC wore Patagonia jackets, PE wore suits. They came from two different universes. But AI is rapidly merging these two worlds into one capital galaxy.”

Seemingly a joke, but it hits the point: AI is breaking down the deepest cultural and structural differences in the capital field.

When technological gains are substantial enough, VC and PE are no longer two asset classes but two ends of the same investment logic.

📌 Summary: This is a historic fusion of capital

The core trends in 2026 will be:

• Traditional PE will be forced to embrace technology
• AI startups will evolve into “companies that buy others to train models”
• VC strategies will extend into acquisition fields
• AI-native service conglomerates will become super-unicorns
• Traditional service industries may undergo their largest structural overhaul in decades

The capital landscape has been redesigned by AI.