Improving profitability of software portfolio investments used to be about headcount reduction and product rationalization. Not anymore. Tech-focused PE funds are increasingly focusing on growing portfolio profitability using a combination of key product hires, product functionality enhancement and investing in sales. This "VC type" mindset is appropriate given the significant growth in key software markets, adoption of cloud and artificial intelligence and availability of several disruptive technologies.
Obviously one size does not fit all, and there are many tech funds who continue to focus on cost optimization, product portfolio rationalization and rightsizing. However, these types of profitability growth opportunities exist mostly within large software companies.
When the entire private equity remit was improving EBITDA and cutting costs, building a sustainable business was less important. Today, success is amplified through innovation: investing in the first few years of an investor's hold period to building new revenue streams, new sales and marketing infrastructure, and entirely new markets.