Masters in Business• Aug 15, 2025• 1:06:34Interview

Deven Parekh on the State of Startup Investing | Masters in Business

From Masters in Business

Deven Parekh•Managing Director, Insight Partners

Executive Summary

Insight Partners operates a unique, scaled model for software investing, combining a stage-agnostic approach (from Series A to buyouts) with massive, dedicated teams for deal sourcing (60+ people) and portfolio value-add (125+ people).
The firm's thesis is anchored in the historical resilience of the software industry, which Deven Parekh claims has not had a single year of aggregate revenue decline since 1995, making it an attractive asset class through economic cycles.
In response to LP pressure for liquidity, Insight has intensified its focus on generating distributions (DPI), establishing an internal liquidity committee and actively pursuing 'venture buyouts' to acquire controlling stakes in growth-stage companies.
Parekh views AI as a major disruptive force, believing it poses a significant risk to generic software applications while creating opportunities for companies with deep vertical expertise and proprietary data moats.

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Concerns Raised

The systemic risk of a large-scale cyberattack on critical physical infrastructure.
The threat of AI commoditizing generic software companies that lack deep domain expertise or a data moat.
Widespread LP frustration with the private equity industry's lack of cash distributions (DPI).

Opportunities Identified

The continued, non-cyclical growth of the software industry, which has proven resilient through multiple recessions.
Executing 'venture buyouts' to acquire controlling stakes in mature, growth-stage software companies to generate liquidity.
Leveraging AI within portfolio companies to accelerate revenue growth and improve operational efficiency.

Key Themes

The Insight Partners Flywheel

Insight Partners has built a highly scaled and systematic approach to software investing. This includes a 60+ person deal sourcing team that contacts over 20,000 companies annually, a stage-agnostic mandate from venture to buyout, and a 125+ person value-add team called 'Insight On-Site' that provides functional expertise to portfolio companies.

This operational scale and integrated model is a key differentiator in the competitive private equity and venture capital landscape, allowing the firm to systematically identify, invest in, and accelerate the growth of software companies globally.

The Unwavering Case for Software

The core of Insight's investment thesis is the durable, long-term growth of the software sector. Parekh asserts that the industry has not experienced a single year of aggregate revenue decline since 1995, even through major recessions, and that lenders view software companies as having the lowest loss ratio of any industry.

This highlights the defensive, non-cyclical growth characteristics of the software industry, making it a compelling category for long-term capital allocation despite fluctuating market sentiment.

The Shift from Paper Gains to Real Returns

The private equity industry is facing a major challenge as institutional investors (LPs) shift their focus from theoretical multiples (MOIC) to actual cash distributions (DPI). Parekh notes this is the number one complaint from LPs, prompting Insight to create a dedicated liquidity committee and employ strategies like 'venture buyouts' to generate returns.

This trend signals a maturing private equity market where the ability to successfully exit investments and return capital to investors is becoming as critical as sourcing and making good investments in the first place.

AI as a Moat-Tester

Parekh believes AI is a fundamental technology shift that threatens to commoditize generic software applications. He argues that defensibility and future success will depend on having deep vertical domain expertise or a proprietary data moat that AI models cannot easily replicate.

This provides a clear framework for evaluating software investments in the age of AI, prioritizing companies that solve specific, complex industry problems over those offering horizontal, easily-disrupted tools.

Power Law Across All Stages

Contrary to the common belief that power law dynamics are exclusive to early-stage venture, Parekh argues they apply to all investment stages, including growth equity and buyouts. The nature of the distribution simply changes, with 'losses' in buyouts being 1x returns rather than zeros, while still requiring a few big winners (e.g., 4-5x) to drive fund performance.

This insight challenges conventional portfolio construction theory, suggesting that even in later-stage investing, a concentrated number of outlier successes is essential for top-quartile returns.

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Topics

Insight Partners Venture Capital Private Equity Growth Equity Software Investing SaaS Venture Buyouts Deal Sourcing Value Creation DPI (Distributions to Paid-in Capital)LP Relations Power Law Artificial Intelligence (AI)Cybersecurity Total Addressable Market (TAM)

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