PE INTELLIGENCE BRIEFING

THE ART OF THE ALGORITHM-DRIVEN DEAL — BUT NOT IN ADTECH

The market's narrative is consumed by macro headwinds, but the signal from the smart money points to a quieter, more profound shift: a renewed focus on rigorous, data-driven operational excellence and business model innovation as the primary driver of value creation. This isn't just about AI — it's about applying a sophisticated "quant" mentality to everything from restaurant operations to luxury retail, turning traditionally "bad businesses" into precisely managed, high-margin ventures. The future of private equity isn't just buying good companies; it's about making them measurably better, faster, and with less wasted motion, often by deeply understanding the customer and owning the entire value chain.

THIS WEEK’S INTELLIGENCE

📊 10 episodes across 5 sources

⏱️ 6.5 hours of conversation with operators, GPs, and advisors

🎙️ Featuring: Nick Kokonas (Alinea/Tock), Mark Cuban (Mavericks/AI Investor), Michael Berkowitz (Norwegian Wool), Brad Pilcher (Bonaccord Capital Partners), Mike Gitlin (Capital Group)

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

THE BRIEF

The consensus view for much of the last few years has been that high entry multiples demanded a greater emphasis on financial engineering or relying on market benevolence for an exit. That narrative is breaking. What’s emerging is a quiet resurgence of fundamental, operational value creation, driven by a deeper understanding of business mechanics and a willingness to challenge conventional wisdom. We’re seeing GPs and operators applying algorithmic thinking to businesses previously considered "artistic" or "relationship-driven" — from dynamic pricing in fine dining to hyper-efficient supply chains in luxury goods. The shift is not just about adopting AI tools, but adopting an AI-era mindset: quantify everything, own the customer relationship, and ruthlessly optimize for predictable outcomes. This digest cuts through the noise, revealing how top performers are building enduring value by mastering the art of the algorithm-driven deal across unexpected sectors. Here's what you need to know.

THE BRIEFING

THE "BAD BUSINESS" THAT ISN'T: DATA-DRIVEN OPERATIONS ARE THE NEW MOAT

The old adage "never invest in a restaurant" is being challenged by a new breed of operator. What previously appeared as an inherently risky, low-margin endeavor is being reframed as an opportunity for those who apply stringent business strategy and data analytics. This isn't just about tech-enabled order taking; it's about viewing the entire customer journey and operational process as a system to be optimized.

The Situation: Historically, restaurants are seen as cash incinerators. High overhead, volatile demand, and thin margins scare off most institutional capital.

The Intelligence: The truly differentiated players, like Nick Kokonas at Alinea and Tock, are meticulously dissecting every aspect of the business. They're asking, "What exactly are we selling?" and then building models to ensure profitability. This includes radical approaches like dynamic pricing for reservations, a strategy borrowed from airlines and hotels, which optimizes revenue per available seat. The insight is that if you understand the core product (e.g., an "experience" not just "food") and control the distribution, you can escape the commodity trap. This mindset extends beyond fine dining; it's a blueprint for re-evaluating any business deemed "inherently bad" by conventional wisdom.

The Voice:

"If you're doing things correctly, it means that you can be correct and wrong at the same time." — Nick Kokonas, Invest Like the Best

The Numbers: Kokonas's Tock platform monetizes the reservation process, eliminating no-shows and driving predictable revenue streams, a stark contrast to the 30%+ no-show rates and lost revenue many traditional restaurants face.

The Implication: GPs looking for overlooked opportunities should scrutinize sectors with perceived "bad business models." The real opportunity may lie with operators who are applying analytical rigor and innovative pricing/operational strategies to turn these assumptions on their head. It points to a new era where operational excellence, driven by data, supplants reliance on sector tailwinds.

THE PROFESSIONALIZATION OF PE: GROWING UP OR SELLING OUT?

The private equity industry is maturing, evolving from swashbuckling deal-making to a more structured, institutionalized asset class. This "professionalization" isn't a buzzword; it's a fundamental shift impacting how firms raise capital, manage talent, and pursue growth.

The Situation: PE firms, particularly mid-market players, are under increasing pressure to demonstrate consistent, repeatable value creation and efficient capital deployment. Limited Partners are demanding greater transparency, institutional-grade reporting, and diversified product offerings.

The Intelligence: GP stakes investing—where an institutional investor buys a minority stake in a PE firm's management company—is a key enabler and symptom of this professionalization. Firms like Bonaccord Capital Partners are not just providing capital; they're bringing strategic guidance on talent development, investor relations, and multi-product expansion. The focus is on building enduring institutions, not just a series of successful funds. This involves formalizing firm culture, establishing rigorous origination processes, and ensuring a robust succession plan. The "cowboy" era is truly over; disciplined, enterprise-grade management is now table stakes.

The Voice:

"In business as in life, the only constant is change." — Brad Pilcher, The Private Equity Podcast

The Numbers: The private markets are projected to grow by 75% between 2024 and 2029, a staggering figure that underscores the necessity for PE firms to scale capabilities in line with this capital influx.

The Implication: PE firms unable or unwilling to embrace this level of professionalization risk being left behind. LPs will increasingly gravitate towards firms that demonstrate institutional maturity, predictable returns, and strong governance. For dealmakers, this means a shift in what makes a PE firm an attractive partner – it's no longer just about access to capital, but also access to operational and strategic expertise.

AI IS NOT JUST BIG TECH: LOWERED BARRIERS TO ENTRY AND "QUIET LUXURY"

While the headlines are dominated by billion-dollar AI deals, the real disruptive force of AI might be in democratizing entrepreneurship and enabling niche plays, even in high-barrier-to-entry markets like luxury. AI's impact isn't just about scale; it's about precision and access.

The Situation: AI discussions often center on large-scale applications or existential risks. Meanwhile, new entrepreneurs face significant hurdles in market entry, especially in established industries dominated by incumbents.

The Intelligence: Mark Cuban argues that AI significantly lowers the barrier to entrepreneurship, making it easier for individuals to launch and scale businesses without massive upfront investment in R&D or extensive human capital. This democratizing effect allows for highly specialized ventures like Norwegian Wool, a luxury coat brand founded by a former trader, to compete effectively. Their success doesn't rely on being a tech giant but on leveraging precise brand messaging, superior product quality (addressing a specific pain point like "nice coats not warm, warm coats not nice"), and exceptional, personalized customer service. This "quiet luxury" trend, focusing on understated quality over overt branding, is enabled by entrepreneurs who can efficiently research markets, manage supply chains, and engage customers using accessible digital tools, including AI.

The Voice:

"Do you think AI is lowering the barrier to entrepreneurship? Oh, yeah. By age and access." — Mark Cuban, Masters of Scale

The Numbers: Dollar Shave Club, despite its rapid ascent to a billion-dollar exit, was founded on a simple premise, enabled by direct-to-consumer models and viral marketing. Today, AI tools could shorten that path even further for similar disruptive ventures.

The Implication: GPs should look beyond traditional tech plays for AI's impact. The ability for smaller, agile companies to leverage AI for market analysis, customer segmentation, design, and operational efficiency creates opportunities for outsized returns in previously inaccessible or highly competitive markets. The focus should be on entrepreneurs who are exploiting AI not as a product, but as an enabling capability.

DEAL FLOW SIGNALS

WHERE THE ACTION IS

🔥 Active:Operational Excellence in Underserved Sectors: Applying data-driven strategy to "bad" businesses (Source: Invest Like the Best)GP Stakes Investing: Institutional capital flowing into PE firms themselves for scaling and professionalization (Source: The Private Equity Podcast)AI-Enabled Niche Entrepreneurship: Leveraging AI to reduce entry barriers in specialized markets like luxury goods (Source: Masters of Scale, The Prof G Pod)

🧊 Quiet:Traditional Restaurant Investment: Without a clear, disruptive operational model (Source: Odd Lots)Generic Tech Plays: Without a distinct AI integration or unique competitive advantage (Source: All-In, Masters of Scale)

👀 Emerging:Preventative/Personalized Medicine via AI: Combining new sensor technology with AI for healthcare disruption (Source: Masters of Scale)Citizen Journalism for Fraud Detection: Highlighting gaps in traditional media and potential for political leverage (Source: All-In)

⚠️ Stressed:Traditional Media: Struggling to expose complex frauds due to resource constraints (Source: All-In)Supply Chain Vulnerabilities: Specific industries showing increased exposure to global shocks (Source: Odd Lots)

THE OPERATOR’S EDGE

1. Dynamic Pricing & Inventory Control for Experiences: Nick Kokonas's approach to Tock and his Chicago restaurants is a masterclass in treating "experiences" as inventory. By implementing pre-paid tickets and demand-based pricing, he effectively eliminates no-shows and maximizes revenue per cover. This isn't just about filling seats; it's about controlling the customer funnel and extracting maximum value, a strategy applicable to any experiential business (e.g., entertainment venues, high-end services).
2. Micro-Influencer Marketing over Broad Reach: In an increasingly crowded digital landscape, a key actionable strategy for scaling businesses, particularly those targeting specific demographics, is to leverage micro-influencers. The advice from "How I Built This" emphasizes that these smaller, more authentic voices often deliver higher engagement and conversion rates than generalized paid media, yielding a better ROI for marketing spend. This is particularly potent for luxury or niche brands looking to build trust and community.
3. Customer-Centricity as the Core Business: Michael Berkowitz of Norwegian Wool directly observed a customer pain point ("nice coats weren't warm, warm coats weren't nice") and built an entire brand around solving it with exceptional product and service. This operator's edge isn't about being first to market but being best-in-class at understanding and serving a precisely defined customer need, then executing flawlessly on product quality and post-sale care. This creates loyalty and premium pricing power, critical for long-term value.

THE CONTRARIAN POSITION

While the market is captivated by the potential for AI to automate, Mark Cuban throws a wet blanket on much of the current AI enthusiasm, arguing that a significant portion of current "AI" is overhyped and merely "advanced automation." He challenges the notion that companies are meaningfully integrating AI into their core operations beyond basic efficiency gains. Cuban believes the real value will come from companies that deeply embed AI into predictive capabilities, especially in areas like prophylactic healthcare, rather than simply using it for incremental improvements. This suggests many current AI valuations might be built on the superficial rather than the truly transformative.

THE BOTTOM LINE

The current climate demands more than just financial engineering. The real value is being created by operators and GPs who are applying deeply analytical, almost "algorithmic," thinking to solve fundamental business challenges, turning perceived weaknesses into strong competitive advantages. Watch for firms not adopting AI as a buzzword, but those applying rigorous, data-driven principles to enhance operational efficiency, customer value, and firm-level professionalization.

📚 APPENDIX: EPISODE COVERAGE

1. Invest Like the Best with Patrick O'Shaughnessy: "Nick Kokonas - Know What You Are Selling - [REPLAY]"

Guests: Nick Kokonas (Co-Founder, Alinea Group; CEO, Tock)
Runtime: 1 hr 16 min | Vibe: Visionary business builder challenging industry norms

Key Signals:

• Defying Industry Conventions: Kokonas fundamentally challenges the perception that restaurants are "bad businesses." He argues that with a strong business model, ownership mindset, and a focus on measurable outcomes, restaurants can be highly profitable and provide capital for further investment in the "art" of the cuisine.
• Dynamic Pricing as a Profit Driver: The implementation of dynamic pricing through ticketed reservations (similar to airlines/hotels) allows premium restaurants to stabilize demand, eliminate no-shows, and optimize revenue per available seat, demonstrating that even traditional service industries can benefit from sophisticated pricing strategies.
• "Know What You're Selling": The core framework involves identifying the true product (e.g., an "experience" vs. "food") and then aligning all operational and pricing strategies to maximize its value. This principle is applicable across diverse sectors where the perceived offering might obscure the actual value proposition.

"Own something, make lots of decisions that have outcomes, try to be right 51% of the time and do that often and repeat."

2. Odd Lots: "The Business of Butterworth's, the Hottest New Restaurant in Washington DC"

Guests: Bart Hutchins (Chef-Owner, Butterworth's)
Runtime: 1 hr 1 min | Vibe: Gritty entrepreneurial reality meets political hot takes

Key Signals:

• Operational Challenges in Highly Political Markets: Running a restaurant in Washington D.C. involves unique hurdles beyond typical food and labor costs, such as navigating political sensitivities and local sourcing requirements, while also dealing with post-2020 economic shifts. This illustrates how external, non-market factors can heavily influence business viability.
• Supply Chain and Cost Pressures: Bart Hutchins details the consistent struggle with sourcing ingredients from local farms and managing the escalating costs of both food and labor. This highlights the ongoing inflationary pressures on small businesses and the importance of supply chain resilience and cost control.
• Cultural Impact on Business Identity: The restaurant's identity as a "MAGA hangout" in D.C. defines its clientele and public perception, demonstrating how political alignment can be an unexpected and potent differentiator (or liability) for a consumer-facing business in certain locales.

"If you're looking to make money off an investment, never invest in a restaurant."

3. All-In with Chamath, Jason, Sacks & Friedberg: "Massive Somali Fraud in Minnesota with Nick Shirley, California Asset Seizure, $20B Groq-Nvidia Deal"

Guests: Nick Shirley (Investigative Journalist)
Runtime: 1 hr 45 min | Vibe: Unsettling exposé of fraud with broader political implications

Key Signals:

• Underserved Investigative Journalism: Nick Shirley's work exposes how citizen journalism can fill critical gaps left by traditional media in uncovering large-scale fraud, particularly when such fraud involves politically sensitive communities or complex financial schemes. This points to a need for more diligent oversight and potential investment in independent investigatory capabilities.
• Systemic Vulnerabilities to Fraud: The case of the $110 million childcare fraud in Minnesota highlights significant vulnerabilities in government funding programs, suggesting a lack of robust oversight mechanisms that can be exploited for massive illicit personal gain, and potentially for funding wider criminal or terrorist activities.
• Political Weaponization of Data: The discussion implicitly touches on how detailed exposés of such fraud can become potent political tools, especially if one party is perceived as more complicit or negligent in addressing the issues, impacting voter sentiment and public trust in institutions.

"What Nick has done is show that the fraud is massive and in plain sight and no one bothered to expose it."

4. How I Built This with Guy Raz: "Advice Line: Tapping AI as a Resource for Your Business"

Guests: Various entrepreneurs seeking advice, prominent founders (e.g., Randy Hetrick of TRX)
Runtime: 45 min | Vibe: Practical, actionable advice for scaling and modernizing small businesses

Key Signals:

• AI for Small Business Efficiency: Entrepreneurs are increasingly seeking practical ways to integrate AI into their operations for tasks like content generation, customer service, or data analysis, not just for groundbreaking innovation but for incremental efficiency gains and resource optimization.
• Strategic Social Media and Micro-Influencers: Advice emphasizes focusing on niche social media strategies and leveraging micro-influencers for authentic engagement, over broad-stroke paid media campaigns. This is particularly relevant for startups with limited marketing budgets seeking impactful reach within specific demographics.
• Staying Focused on Core Business: A recurring theme is the importance of not getting distracted by every new technology or trend, but rather using new tools like AI to enhance the core value proposition. This discipline is critical for sustainable growth, especially for founders navigating competitive landscapes.

"I love the idea of using micro influencers instead of paid media."

5. The Prof G Pod with Scott Galloway: "First Time Founders: This Former Trader Built A Luxury Clothing Brand"

Guests: Michael Berkowitz (Founder, Norwegian Wool)
Runtime: 35 min | Vibe: Inspiring deep dive into breaking into a legacy industry

Key Signals:

• Disrupting Established Luxury Markets: Michael Berkowitz's journey from Wall Street to luxury fashion demonstrates that deep product knowledge, a clear value proposition, and an understanding of nuanced customer needs (beyond just brand recognition) can enable new entrants to thrive against legacy brands.
• The Rise of "Quiet Luxury": The success of Norwegian Wool underscores the growing consumer demand for understated, high-quality, functional luxury over ostentatious branding. This trend prioritizes craftsmanship and utility, creating opportunities for brands that can deliver genuine value in these areas.
• Strategic Outsourcing and Relationship Building: Building a luxury brand from scratch requires meticulous sourcing, quality control, and strong relationships with manufacturers. Berkowitz's experience highlights the importance of finding reliable partners and managing those relationships effectively to ensure product integrity and timely delivery.

"My nice coats weren't warm, and my warm coats weren't nice."

6. Masters of Scale: "Pioneers of AI: Mark Cuban’s investment strategy in this new era of tech"

Guests: Mark Cuban (Entrepreneur, Investor, Owner of Dallas Mavericks)
Runtime: 40 min | Vibe: Forward-thinking, slightly skeptical but optimistic about AI's practical applications

Key Signals:

• AI as a Democratizing Force: Cuban posits that AI significantly lowers the barrier to entrepreneurship by providing accessible tools and resources, allowing smaller players to compete effectively with larger incumbents by enhancing efficiency and analytical capabilities.
• AI's Transformative Potential Beyond Current Hype: While acknowledging the "AI bubble," Cuban emphasizes that the true, long-term impact of AI will be in areas like preventative and personalized medicine (combining sensors with AI) rather than the current focus on generative AI for content or basic automation.
• Investing in AI Education: Cuban highlights the critical need to educate younger generations (K-12) about AI, arguing that accessibility and understanding will be key to unlocking its full economic and societal benefits. This suggests a future talent gap that investors should consider.

"Do you think AI is lowering the barrier to entrepreneurship? Oh, yeah. By age and access."

7. The Private Equity Podcast, by Raw Selection: "A GP Stakes Perspective on the Professionalisation of Private Equity"

Guests: Brad Pilcher (Partner and Co-Founder, Bonaccord Capital Partners)
Runtime: 55 min | Vibe: Insightful, strategic, focused on the evolution of PE as an asset class

Key Signals:

• Professionalization of Private Equity: The industry is maturing, requiring PE firms to adopt more robust structures around culture, capital, talent, and growth. This involves moving beyond ad-hoc deal-making to building institutional-grade operations for long-term sustainability and attracting sophisticated LPs.
• GP Stakes as Growth Capital: Investing in GP stakes, as done by Bonaccord Capital Partners, provides PE firms with strategic capital to scale, diversify product offerings, and enhance investor relations and sourcing capabilities. This is a mechanism for mid-market firms to become more "institutional" rather than just deal vehicles.
• Four Drivers of Evolution: Pilcher identifies four key areas for PE firm development: culture (values, team alignment), capital (diversified and flexible), talent (recruitment, retention, development), and growth (multi-product, geographic expansion). Firms excelling in these areas will attract the most capital and talent.

"Great firms know who they are, and evolve with purpose."

8. Capital Allocators – Inside the Institutional Investment Industry: "Mike Gitlin – The Century of Capital Group (EP.479)"

Guests: Mike Gitlin (CEO, Capital Group)
Runtime: 1 hr 5 min | Vibe: Deep dive into institutional asset management philosophy and culture

Key Signals:

• Long-Term Investment Philosophy: Capital Group's century-long success is attributed to its unwavering long-term perspective, private ownership structure, and a unique multi-manager investment system that fosters a calm, client-centric approach, rather than short-term performance chasing.
• Multi-Manager System for Diversification: The firm avoids single-manager risk by having multiple portfolio managers run independent sleeves within funds, ensuring that no single individual’s “300th best idea” is central to client returns. This diversifies thought and mitigates key-person risk.
• Incentive Systems Drive Culture: The firm's compensation structure and internal culture are meticulously designed to incentivize long-term thinking, collaboration, and client focus. This model suggests that robust internal governance and incentive alignment are paramount for enduring success in asset management.

"No investor should want to be with a company where you're left with a single individual's 300th best idea. Think of it as a multiple portfolio manager and analyst run best idea portfolio."

9. How I Built This with Guy Raz: "Dollar Shave Club: Michael Dubin, From Zero to a Billion Dollar Exit in Five Years (December 2018)"

Guests: Michael Dubin (Founder, Dollar Shave Club)
Runtime: 50 min | Vibe: Captivating origin story of viral marketing success

Key Signals:

• Viral Marketing as a Launchpad: Michael Dubin's background in video and comedy was instrumental in creating the Dollar Shave Club's iconic viral launch video, demonstrating the power of creative content to disrupt traditional markets and achieve rapid brand recognition with minimal advertising spend.
• Subscription Model Disruption: Dollar Shave Club successfully leveraged a direct-to-consumer subscription model to challenge established razor brands, proving that convenience and a streamlined value proposition can unseat incumbents, especially when coupled with effective branding.
• Speed to Market and Exit Strategy: The company's journey from inception to a billion-dollar exit in just five years highlights the potential for rapid scaling and successful M&A in the D2C space when a clear market need is identified and aggressively pursued with an innovative business model.

"Michael’s background in video and comedy helped him create a viral launch video for his spontaneous idea: an internet razor subscription brand called Dollar Shave Club."

10. Odd Lots: "What Really Happens at a Fed Research Conference"

Guests: Multiple economists and participants from the Boston Fed's 69th annual Economic Conference
Runtime: 58 min | Vibe: Academic rigor informs real-world policy dilemmas

Key Signals:

• Academic Insight for Policy Decisions: Fed research conferences serve as crucial forums where cutting-edge economic research directly informs monetary policy. This highlights the foundational role of rigorous academic study in shaping the decision-making of central banks and economic thought leaders.
• Global Interconnectedness and US Economy: Discussions reveal a growing consensus that the US economy is far more exposed to global shocks than previously assumed. Factors like international trade networks and global supply chain disruptions are increasingly influencing domestic economic stability and inflationary pressures.
• Evolution of Macroeconomic Thought: The conference discussions signal a shift in how economists and policymakers view their assumptions about the US economy's insulation. This continuous re-evaluation of models and data is critical for adaptive policy-making in an interconnected world.

"These conferences are where the macro ideas sort of actually collide with real world data. It is where the first serious drafts of tomorrow's policy debates are aired."