AI & The Operator: New Frontier for Value Creation

PRIVATE EQUITY BRIEFING: AI AND THE OPERATOR – THE NEW FRONTIER FOR VALUE CREATION (AND REGULATION)

THIS WEEK'S INTELLIGENCE

📊 13 episodes across 8 sources

⏱️ ~18 hours of conversation with operators, GPs, and advisors

🎙️ Featuring: Henry Ellenbogen (Durable Capital), Alexander Embiricos (OpenAI), Bobby Trussell (Tempur-Pedic)

The signal from the noise. Here's what matters.

THE BRIEF

The market is buzzing with AI, but our intelligence suggests the conversation is shifting. We're moving past the "what if" to the "how now" — specifically, how AI is fundamentally reshaping operating playbooks and investment theses. The best operators aren’t just adopting AI; they’re architecting their businesses around it, often revealing that human-centric bottlenecks, not AI’s capabilities, are the true limiting factors. This paradigm shift, from AI as a tool to AI as a co-pilot (or even an autonomous agent), is rewriting the rules of efficiency and value creation.

However, this rapid operational integration comes with a new layer of complexity: regulation. Lawmakers are sensing the shift, and the industry is mobilizing to shape (or resist) policy, creating a dynamic tension that will impact investment strategies. Meanwhile, perennial challenges like talent retention, long-term wealth creation for founders, and the struggle for capital access persist, demanding nuanced approaches in an increasingly AI-driven world.

Here's what you need to know.

AI as the Ultimate Operating Partner – Bottlenecks and Breakthroughs

The Situation: AI has moved beyond basic automation to acting as a strategic co-pilot, fundamentally altering workflow and productivity metrics, particularly in software development. The promise of hyper-efficiency is real, but the speed of adoption is less about the tech and more about human integration.

The Intelligence: The biggest bottleneck to AGI-level productivity isn't the AI's capability, but rather "human typing speed or human multitasking speed." Alexander Embiricos, Product Lead for OpenAI Codex, highlights that advanced coding agents like Codex are already so capable they're effectively an "AI software engineering teammate," accelerating development dramatically (e.g., the Sora Android app built in 18 days). This means businesses using AI are finding that the new constraint isn't computing power, but the human's ability to keep up, validate, and integrate the AI's output. The shift is towards AI agents becoming more autonomous, taking on proactive roles rather than just being responsive tools. This elevates the role of workflow design, process integration, and effective human-AI collaboration as critical value creation levers.

The Voice:

"The real bottleneck right now is validating that the code worked and writing code review. We need to get people to configure their coding agents to be much more autonomous." — Alexander Embiricos, OpenAI Codex Product Lead

The Numbers: Productivity gains in areas like software development with AI agents can be exponential, turning multi-month projects into multi-week sprints, implying massive ROI for early adopters.

The Implication: GPs and operators need to analyze not just where AI can be applied, but where humans become the limiting factor in the AI value chain. Investment in re-training, new human-AI interfaces, and scaled validation processes will be critical. This also creates a massive due diligence opportunity to assess a target's "AI readiness" and integration capacity.

The New Regulation Frontier: AI and the Political Crosshairs

The Situation: The rapid advancement and integration of AI are inevitably drawing the attention of policymakers. What was once abstract is now concrete, with real-world economic and societal impacts sparking legislative efforts.

The Intelligence: The AI industry is actively trying to stop state-level regulation. New York assemblymember Alex Bores, with a tech background from Palantir, is facing significant lobbying and financial targeting from AI super PACs for his "Raise Act." This bill aims to set safety standards for advanced AI research. The industry's aggressive posture signals a deep concern over potential regulatory hurdles, hinting at the significant economic stakes involved. This pre-emptive pushback is reminiscent of early internet regulation battles, suggesting that the regulatory landscape for AI will be hotly contested and highly influential on market dynamics. The "odd lots" of the political world are now directly impacting the "big game" of tech investment.

The Voice:

"We're going to be speaking to someone that the AI industry is actively targeting, trying to stop. Alex Boris is a state assembly member in New York." — Odd Lots Podcast

The Numbers: Millions are being spent on lobbying at both state and federal levels to influence AI legislation, underscoring the perceived threat to unchecked innovation and growth.

The Implication: PE firms investing heavily in AI or AI-dependent businesses need to factor in increasing regulatory risk. Proactive engagement with policy discussions, understanding jurisdictional nuances, and building compliance frameworks will be critical to protecting investments and ensuring market access. "AI Washing" strategies centered purely on tech without a robust policy outlook will face headwinds.

Wealth Creation Post-Exit: The ISO & Equity Playbook

The Situation: For founders and early employees, incentive stock options (ISOs) are a primary mechanism for wealth creation, but many lack a clear understanding of their mechanics and tax advantages, especially in private companies.

The Intelligence: Equity, particularly ISOs, is unequivocally "how you get wealthy." Scott Galloway emphasizes the crucial role ISOs play in wealth building for young professionals due to their significant tax advantages. This highlights a persistent gap in financial literacy within the startup ecosystem. Companies seeking to attract and retain top talent need to be proactive not only in offering competitive equity packages but also in educating employees on how to maximize their value. This plays directly into the LP desire for founders to have "skin in the game" and ensures that the drive to build value extends beyond a simple salary. It’s also a common miss in diligence – understanding how well founders and leadership actually understand their equity.

The Voice:

"Equity is how you get wealthy." — Scott Galloway, The Prof G Pod

The Numbers: Properly structured ISOs can offer significant capital gains tax advantages over disqualified stock options, potentially saving founders and early hires millions on large liquidity events.

The Implication: GPs engaging with founders and management teams should ensure a sophisticated understanding of equity structures to align incentives and maximize post-acquisition wealth. For portfolio companies, demystifying stock options can be a key retention and motivation tool, turning employees into true owners.

The Long Game: Identifying the "Act 2" Teams for Enduring Value

The Situation: Successful investments aren't just about identifying a hot idea; they're about backing teams that can evolve and sustain growth beyond the initial spark. This "Act 2" capability is rare and defines long-term value.

The Intelligence: Henry Ellenbogen of Durable Capital Partners posits that "great investing is about understanding people and change" and identifying the rare 1% of companies driven by "Act 2" teams. These are teams capable of transitioning from initial success to sustained, multi-cycle growth. This requires individuals who possess intellectual honesty and adaptability, willing to pivot and continuously innovate. This perspective pushes beyond traditional diligence on market size or tech stack, focusing instead on leadership's capacity for transformation. It means discerning between founders who are brilliant at "Act 1" disruption versus those who can lead an enterprise through multiple phases of scaling and market shifts.

The Voice:

"Great investing is about understanding people and change." — Henry Ellenbogen, Durable Capital Partners

The Numbers: Only a tiny fraction of companies (e.g., 20 stocks over 50 years) truly drive outsized market performance, suggesting that the ability to identify these rare "Act 2" teams is a critical differentiator for top-tier funds.

The Implication: Investment committees should explicitly screen for "Act 2" leadership potential — looking for adaptability, intellectual honesty, and a proven track record of evolving strategy. This goes beyond standard management team assessments and into a deeper dive on their capacity for continuous change and reinvention.

Operational Excellence: The Path to Founder-Independent Scale

The Situation: Many businesses, especially in the mid-market, remain too dependent on the founder or key individuals, hindering scalability and exit readiness. True value creation requires a transition from personalized genius to replicable systems.

The Intelligence: Ryan Deiss's framework for building businesses that can run without the founder is a critical operating playbook. The core principle: moving from a "player" (founder heavily involved in daily execution) to an "owner" (founder overseeing systems). This is achieved by establishing "defaults," identifying constraints, and meticulously mapping business processes. The goal is to build a "lifestyle business" that doesn't demand constant founder involvement, making it significantly more attractive for acquisition. Early stage companies often focus on product-market fit, but without attention to these operational defaults, they become stagnant or un-acquirable beyond small carve-outs. Amy Weaver of Direct Relief reinforces this, noting the importance of investing in "the right systems, the right processes" for scale, emphasizing "complexity kills efficiency."

The Voice:

"The more valuable you are, the less valuable the company is." — Ryan Deiss, My First Million

The Numbers: Businesses with documented, repeatable processes and strong middle management command higher multiples and attract more strategic acquirers than founder-dependent "lifestyle businesses."

The Implication: Portfolio operations teams should prioritize assisting founders in this transition from player to owner. Implementing process mapping, identifying and resolving operational constraints, and building out leadership layers are direct routes to maximizing enterprise value and ensuring exit readiness.

DEAL FLOW SIGNALS

WHERE THE ACTION IS

🔥 Active: AI-powered software (efficiency gains), Human-AI interface solutions (bottleneck resolution), Process-driven middle-market companies (systemization for scale).

🧊 Quiet: Early-stage, founder-dependent businesses (lack of scalability), non-AI-integrated legacy software (rapid obsolescence risk).

👀 Emerging: "AI-native" operating models (fully re-architected businesses), companies explicitly addressing AI regulatory compliance (de-risking growth).

⚠️ Stressed: Companies without clear ISO structures or wealth education for key employees (retention risk), businesses heavily reliant on single-point-of-failure leaders.

THE OPERATOR'S EDGE

1. AI Workflow Re-engineering: Leading ops teams aren't just bolting AI onto existing processes; they're re-engineering workflows around autonomous AI agents. This involves deep dives into human-AI interaction points to identify and eliminate "human typing speed" bottlenecks. (Source: Lenny's Podcast)
2. Fractional Leadership for Systematization: To shift founders from "player" to "owner," some firms are deploying fractional COOs or "integrators" who specialize in process mapping, default setting, and building out replicable operational systems—crucial for scale and de-risking founder dependence. (Source: My First Million)
3. Proactive Equity Education: Beyond just offering ISOs, best-in-class companies are providing detailed financial education to employees on how to maximize the value of their equity. This builds loyalty, incentivizes long-term value creation, and ensures wealth is actually realized at exit. (Source: The Prof G Pod)

THE CONTRARIAN POSITION

While "AI is everything" dominates the headlines, Henry Ellenbogen of Durable Capital Partners takes a measured view, reminding us that "great investing is about understanding people and change." He warns against blindly chasing AI without a deep understanding of the human element that drives enduring value, specifically the "Act 2" teams capable of navigating continuous evolution. This suggests that while AI amplifies, it doesn't replace the fundamental human drivers of long-term superior returns.

THE BOTTOM LINE

AI is no longer a growth hack; it's a fundamental operating layer. GPs need to diligence not just AI's potential in a target, but also management's capacity to integrate it strategically and mitigate emerging regulatory risks. For portfolio companies, the focus must be on human-AI bottleneck elimination and rigorous systemization to achieve founder-independent scale.

📚 APPENDIX: EPISODE COVERAGE

1. Lenny's Podcast: Product | Career | Growth: "Why humans are AI’s biggest bottleneck (and what’s coming in 2026) | Alexander Embiricos (OpenAI Codex Product Lead)"

Guests: Alexander Embiricos (OpenAI Codex Product Lead) Runtime: ~1 hour 15 minutes | Vibe: Forward-looking, deeply technical, paradigm-shifting

Key Signals:

• AI as an Autonomous Teammate: Advanced AI coding agents like OpenAI Codex are transitioning from being mere tools to actual "AI software engineering teammates" capable of autonomous code generation and problem-solving. This implies a future where humans manage AI rather than perform rote tasks.
• Human Bottleneck to AGI Productivity: The primary constraint to achieving widespread AGI-level productivity isn't the AI's capability, but human limitations such as "typing speed or human multitasking speed." Orchestrating and validating AI outputs, not generating them, becomes the new bottleneck.
• Future of AI Autonomy: The trajectory is towards AI agents being configured for greater autonomy, allowing them to proactively execute complex tasks, reducing the need for constant human intervention. This redefines efficiency and workflow design in virtually any knowledge work domain.

"The real bottleneck right now is validating that the code worked and writing code review. We need to get people to configure their coding agents to be much more autonomous."

2. Capital Allocators – Inside the Institutional Investment Industry: "Matthew Dicks – Storytelling Mastery (EP.477)"

Guests: Matthew Dicks (Bestselling author, Storyteller) Runtime: ~45 minutes | Vibe: Engaging, practical, performance-driven

Key Signals:

• Performance Over Presentation: Investors and executives should approach communication as a "performance" rather than a mere "presentation," focusing on engaging narratives to capture attention and convey impact. This shifts the emphasis from data points to emotional connection and narrative arc.
• Strategic Narrative Construction: Effective storytelling requires meticulous preparation, including a "homework for life" process to generate material, and designing narratives with compelling beginnings and endings. Humor, when used strategically, can enhance audience connection.
• Audience-Centric Communication: Understanding and anticipating the listener's perspective is paramount, alongside avoiding common pitfalls like information dumps or a lack of personal connection. Tailoring the story to the audience's interests and emotional landscape drives persuasion.

"No one ever wakes up in the morning hoping to see a presentation, but they do wake up every morning hoping to see a performance."

3. How I Built This with Guy Raz: "Advice Line with Bobby Trussell of Tempur-Pedic"

Guests: Bobby Trussell (Founder, Tempur-Pedic) Runtime: ~30 minutes | Vibe: Mentoring, practical, growth-focused

Key Signals:

• Test and Replicate Before Scaling: Early-stage founders must rigorously test new business models and ensure replicability before attempting to scale or franchise. This disciplined approach prevents premature expansion into unproven territories.
• Product Differentiation and Demand: Sustainable growth comes from identifying unique product differentiation that addresses a clear market demand. Trussell's examples highlight the importance of deeply understanding customer needs and how a product meets them.
• Focus on Core Success: Entrepreneurs should identify and concentrate efforts on "the one part of the business that you should really put the most effort into" – the core value driver that can be scaled. This often means saying no to distractions and optimizing proven successes.

"I don't think you're ready to franchise now. I think you have to test first, right? You've got to figure out whether this is replicable first."

4. The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch: "20VC: Will SpaceX IPO at $1.5TRN | Will Cursor Kill Figma | Lightspeed Raises $9BN | OpenAI: $1BN from Disney, New CRO & #1 App in App Store | Oracle and Broadcom Hit: Now the Time to Buy?"

Guests: Harry Stebbings (Host) Runtime: ~20 minutes | Vibe: Fast-paced, market-scanning, VC-centric

Key Signals:

• Mega-Fund Resilience: Lightspeed's $9 billion fundraise demonstrates continued LP confidence in top-tier VC funds capable of deploying capital across diverse, high-growth sectors, despite broader market headwinds. This signals a flight to quality for large allocations.
• Incumbent AI Pressure: The emergence of AI-native competitors like Cursor is challenging established software giants (e.g., Figma), suggesting existing market leaders need robust AI strategies or risk significant disruption. This applies to any sector facing AI-powered disrupters.
• Unicorn IPO Holdouts: The trend of major unicorns like SpaceX deferring IPOs (potentially at multi-trillion valuations) means the "greatest gift of venture" continues, allowing private markets to capture more of the growth upside before public exits.

"All these leaders not IPOing is the greatest gift of venture in our lifetimes."

5. Odd Lots: "Meet the Politician the AI Industry Is Trying to Stop"

Guests: Alex Bores (New York Assemblymember) Runtime: ~40 minutes | Vibe: Investigative, policy-focused, critical

Key Signals:

• Aggressive AI Lobbying: The AI industry is actively targeting and funding opposition against state-level AI regulation, particularly against bills like New York's "Raise Act," which aims to establish safety standards for advanced AI research. This reveals the industry's intense focus on maintaining rapid, unfettered development.
• Political Impact of AI: AI is becoming a significant factor in politics, demonstrated by the industry's financial and lobbying efforts to influence legislative outcomes. This foreshadows a complex future where tech giants exert substantial political pressure.
• Challenges of Tech Regulation: Regulating rapidly evolving technologies like AI is inherently difficult, as policymakers often grapple with deep technical understanding and the immense lobbying power of well-funded corporations seeking to avoid constraints.

"AI is going to be very big for politics."

6. The Prof G Pod with Scott Galloway: "What’s Actually Breaking America — with David Brooks"

Guests: David Brooks (Author, NYT Columnist), Scott Galloway (Host) Runtime: ~1 hour | Vibe: Socio-economic, critical, thought-provoking

Key Signals:

• Generational Wealth Transfer: A significant factor in societal breakdown is an ongoing wealth transfer from younger generations to older ones, leading to economic precarity, particularly for young men. This systemic issue underlies many social and political instabilities.
• Decline of Trust and Populism: The rise of populism on both the left and right, along with a pervasive decline of trust, is rooted more deeply in socio-economic shifts (like wealth transfer) than solely social media's influence, though social media amplifies these trends.
• Erosion of Community & Commitment: The declining rates of dating, sexual activity, and civic engagement reflect a broader erosion of community ties and commitment, which is detrimental to societal cohesion and individual well-being. This creates a need for solutions that rebuild communal structures.

"If you look at the rise of populism, both on the left and the right, it dates to about that time [2013]. Was that driven by social media? I think partially, but partially not. I think the core of the ..."

7. Masters of Scale: "The Salesforce CFO who left to save lives"

Guests: Amy Weaver (CEO, Direct Relief; former CFO, Salesforce) Runtime: ~30 minutes | Vibe: Inspiring, leadership, systems-focused

Key Signals:

• Scaling Through Systemization: Successfully scaling any organization, whether a tech giant like Salesforce or a humanitarian non-profit, depends on robust "systems, the right processes in place." A "rickety platform" will inevitably limit growth.
• Career Pivots Driven by Purpose: High-achieving individuals can make significant career transitions, bringing corporate discipline to areas like non-profit leadership, emphasizing that fundamental management and scaling principles are transferable across sectors.
• "Leap and Grow Wings" Mentality: Embracing calculated risk and having "recklessness of faith" to pursue big ambitions is critical for breakthrough growth. This entrepreneurial spirit applies not just to startups but also to transforming established organizations.

"It's very hard to scale if you have a rickety platform. You really have to invest in having the right systems, the right processes in place."

8. The Prof G Pod with Scott Galloway: "How to Think About Stock Options, Healthcare Without Insurance, and Handling Rejection"

Guests: Scott Galloway (Host) Runtime: ~45 minutes | Vibe: Practical, career advice, critical

Key Signals:

• ISOs as Wealth Generators: Incentive Stock Options (ISOs) are highlighted as highly effective wealth-building tools due to their favorable tax treatment. Young professionals, especially, should prioritize understanding and maximizing this equity vehicle.
• Critique of US Healthcare: The US healthcare system is framed as monetized and ineffective for the majority, disproportionately benefiting the top 10% access while leaving the remaining 90% with care levels comparable to developing nations. This calls for systemic overhaul.
• Resilience through Rejection: Developing resilience and a healthy approach to rejection and failure is crucial for career progression and personal growth. Rejection is presented not as a setback, but as an inherent part of the innovative and entrepreneurial journey.

"Equity is how you get wealthy."

9. Masters of Scale: "Lessons of Rapid Response for 2026"

Guests: (Various leaders synthesized by host) Runtime: ~30 minutes | Vibe: Strategic, forward-looking, leadership

Key Signals:

• Complexity Kills Efficiency: As businesses scale, complexity often becomes the enemy of efficiency. Leaders must constantly simplify processes and focus on core missions to maintain agility and rapid response capabilities.
• Human Connection in AI World: In an increasingly AI-driven environment, human connection and empathy emerge as a critical competitive advantage. Organizations that foster strong internal relationships and exceptional customer service will differentiate.
• Embrace Uncertainty and Risk: Navigating continuous disruption requires leaders to be adaptable, embrace uncertainty, and strategically take risks. This turns potential threats into opportunities for innovation and growth.

"If you're focused on scaling your business, complexity kills efficiency."

10. Invest Like the Best with Patrick O'Shaughnessy: "Henry Ellenbogen - Man Versus Machine - [Invest Like the Best, EP.452]"

Guests: Henry Ellenbogen (Founder, Durable Capital Partners) Runtime: ~1 hour 15 minutes | Vibe: Philosophical, long-term, investment strategy

Key Signals:

• Investing in "Act 2" Teams: Elllenbogen's philosophy emphasizes backing "Act 2" teams – those capable of leading companies through multiple phases of growth and change, not just initial success. This requires intellectual honesty and adaptability from leadership.
• Concentrated Drivers of Returns: A tiny fraction of companies (e.g., "only 20 stocks over 50 years" driving performance) account for the vast majority of long-term market returns. This highlights the importance of highly selective, long-duration conviction investments.
• Understanding People and Change: Great investing is fundamentally about deeply understanding human behavior, organizational dynamics, and the forces of change impacting markets. This human-centric approach complements, rather than replaces, quantitative analysis.

"Great investing is about understanding people and change."

11. My First Million: "25 Years of Business Advice in 27 Minutes"

Guests: Ryan Deiss (Entrepreneur, Speaker) Runtime: ~27 minutes | Vibe: Entrepreneurial, practical, systems-driven

Key Signals:

• Player vs. Owner Mindset: Entrepreneurs must transition from being a "player" (actively involved in day-to-day operations) to an "owner" (designing and overseeing the systems that run the business) to achieve scalable growth and personal freedom.
• Systematization for Exit Readiness: Building a business that can run without the founder involves meticulously mapping business processes, establishing clear "defaults," and identifying/resolving operational constraints. This directly increases a company's attractiveness and valuation for acquirers.
• Maximizing Company Value by Reducing Founder Dependence: The more essential a founder is to the daily functioning of a company, the less valuable the company is as an independent entity. Empowering teams and building robust systems de-risks the business and enhances its market appeal.

"The more valuable you are, the less valuable the company is."

12. How I Built This with Guy Raz: "93 Rejections, One Revolution: How Indiegogo Changed Crowdfunding Forever"

Guests: Danae Ringelmann, Slava Rubin (Co-founders, Indiegogo) Runtime: ~40 minutes | Vibe: Inspirational, entrepreneurial, resilient

Key Signals:

• Democratizing Access to Capital: Indiegogo pioneered crowdfunding with a mission to decentralize funding access, proving that the internet could bypass traditional gatekeepers and empower a broad range of creators and innovators. This created an entirely new market segment for early-stage funding.
• Persistence Through Rejection: The Indiegogo founders faced 93 investor rejections before securing funding, underscoring the extreme resilience and conviction required to disrupt established financial models and bring truly novel ideas to market.
• Crisis as Catalyst for Innovation: The 2008 financial crisis ironically became a catalyst for crowdfunding's adoption, as traditional capital became scarce, pushing more individuals and projects towards alternative funding mechanisms. Economic downturns can foster disruptive innovation.

"If you really want to democratize access to capital, why aren't you using the Internet?"

13. Acquired: "10 Years of Acquired (with Michael Lewis)"

Guests: Michael Lewis (Author), Ben Gilbert, David Rosenthal (Hosts, Acquired) Runtime: ~1 hour 30 minutes | Vibe: Reflective, analytical, media industry

Key Signals:

• Quality and Scarcity in Media: The success of Acquired highlights that deep, analytical, and high-quality content, combined with a deliberate scarcity of output, can create significant value and a loyal audience in a crowded media landscape. This serves as a model for niche content businesses.
• Applying Business Principles to Content Creation: The hosts explicitly applied lessons from "the world's best companies" to their own podcast's growth, including rigorous research, unique storytelling, and a well-defined business model within the podcasting ecosystem.
• Chemistry and Complementary Strengths: The sustained success of collaborative ventures like Acquired, particularly over a decade, often hinges on strong interpersonal chemistry between co-founders and complementary skill sets that enhance the overall product.

"It is shocking how different it is from where you started, from where you have. You probably haven't ended up, but where you are now."