Brad Bernstein, Managing Partner at FTV Capital, joins Paul Sweeney and Tom Keene to discuss how AI exuberance is driving both dislocation and opportunity. Bernstein says with AI, we’re in the early innings of a major platform shift similar to cloud or mobile, but with much more uncertainty around how it will play out.
Watch the full video here.
Full Video Transcript
[00:08] Brad Bernstein
I think you have to really flip it around. You have to say yes, very, very rarely. So I think you have to really want to check all the boxes because remember, we’re investing in things we have to hold for five years plus, so we can’t get out quickly. So it’s like getting married. You have to really commit.
[00:27] Paul Sweeney
Brad, if I’m going to raise private equity today, do I have to have AI in my business plan? Is that the only thing getting done today?
[00:34] Brad Bernstein
That’s a great question. I think AI really is crowding out so much capital from other areas of investment. I think you either have to have an incredible story about where you’re investing and how it’s not going to be impacted by AI, or you have to have a really clear AI strategy — how you’re going to integrate AI and think about AI — because it is impacting every aspect of business, but particularly the technology landscape.
[01:01] Paul Sweeney
So what’s the angle? What’s the avenue that you guys are playing as it relates to AI? Or are you putting a lot of chips out in various parts of the supply chain?
[01:11] Brad Bernstein
It’s a great question. So first of all, the first thing you have to do is really understand what are the moats that are going to hold up in an AI world? We are software investors and financial technology investors. So we have to really think about what are the things that AI is not going to disrupt. So when you see strong proprietary data sets, when you see algorithms that are unique and developed over long periods of time, when you see that there’s a market structure where your customers interact uniquely, it’s much harder for AI to come in and replace that. And of course, in financial services, where you’ve got high levels of compliance and governance requirements, all those kinds of limitations make it harder for AI to be disruptive. So you’ve got to really pick those spots as well. But there are a lot of places that you do have to worry about whether AI is going to be encroaching on your space.
[02:12] Tom Keene
Is this you guys? I mean, this is how granular it gets, folks. You’re a backer at FTV of Highway, which is like digitally improving trucking, right? Discuss.
[02:25] Brad Bernstein
Yes. So Highway is an amazing company that creates a marketplace for freight brokers and trucking shippers to interact and make sure that there’s no fraud. You’d be shocked how much fraud there is in the trucking industry.
[02:41] Tom Keene
Every interview we do, AI hasn’t gotten to Highway or all their clients yet. I know you’re going to say, Tom, you’re wrong
[02:50] Brad Bernstein
Well, it’s definitely coming and we have to be thinking about how we integrate AI into Highway’s solutions. But the reality is it’s not going to change the fact that we have the best marketplace for these participants to come together, find each other, and make sure they verify the right counterparties.
[03:09] Tom Keene
Are we going to lose jobs because of all this
[03:11] Brad Bernstein
You know, I think we’re going to lose some jobs and we’re going to create a lot of new and exciting jobs. And I think that’s always very hard to understand and think through the implications. You know, the reality is in the public market, investors get to decide yes, no, or too hard and just sell. In the private market, we have to make decisions that are going to last a very long period of time. So we have to pick companies that are really, really durable long term investments. And so that’s a big difference in terms of how we think about where our money is and how we think about value
[03:44] Paul Sweeney
Right now the AI story, at least in the public equity markets, has been one where we’re just going to throw money at AI — whoever’s spending the most money. And that worked for a long time. Now the market has become more discerning, picking winners and losers, and they’re highlighting areas like software — software as a service in particular. Maybe the online travel agencies is another little niche that might be at risk. Was that overdone? Is that overdone or is that just the market being efficient, trying to identify?
[04:10] Brad Bernstein
I think it’s exactly right. What happened is the immediate reaction to the realization of how powerful AI — and particularly agentic AI — is going to be, was: this is too hard, sell everything. And so all the babies got thrown out with the bathwater. Now people are starting to come back and realize, gee, a lot of these companies have a system of record, have something proprietary. It’s not going to be easy. And so you’re starting to see them separate the good from the bad and allocate capital back. And I think it did get oversold. So you’re seeing a nice recovery