When Bill Woodruff went to register his first investment fund in the fall of 2024, he had to change its name at the last minute. He was planning on calling it “AI Infrastructure Fund”, but around the same time, people had started using that same name to refer to a coalition including Blackrock, Microsoft, and MGX, which had just announced a $30 billion global partnership to invest in data centers and power infrastructure.
Woodruff’s fund’s strategy was vastly different from the coalition’s, and its fundraising target was several zeros removed from the $30 billion. So to avoid any confusion, he settled for “AIIP Fund” instead, after the fund’s general partner AI Infrastructure Partners, which Woodruff co-founded with managing partner Jason Frank earlier in 2024.
Even without his first choice name, he found the whole experience “validating.” “Maybe we’re in the right place at the right time if a name like the one we wanted for our fund was just taken by such a prominent group,” he told Latitude Media.
Over the past few months, many major global investors have turned their attention to AI Infrastructure as an emerging asset class, announcing billions of dollars in partnerships. Today, even Blackrock’s fund is toward the low end of the spectrum, in terms of size — KKR and Energy Capital Partners, for example, entered a $50 billion AI infrastructure partnership late last year. And AIIP Fund is dwarfed by nearly all of them.
But Woodruff thinks there’s plenty of space for lower- and middle-market investors to take advantage of the tailwinds of AI as well.
With a $75 million target, capped at $145 million, AIIP Fund plans to invest in companies occupying the middle of the AI infrastructure pyramid: not venture-backed AI software startups nor major infrastructure asset owners, but the power distribution, storage, and semiconductor companies poised to benefit from the AI revolution despite being too small for acquisition by major funds.
“We’re looking to buy generally profitable and established businesses, which distinguishes us from the massive number of AI venture-funded entities with substantial valuations,” Woodruff explained. “We’re not interested in businesses that aren’t established or profitable, and we’re avoiding the AI-linked premium on transactions.”
In short, their focus is on businesses “that exist today in this essential layer of AI infrastructure” but “are too small or not ready to be acquired by a $30 billion fund,” he added.
Image credit: AI Infrastructure Partners.
For decades, the U.S. offshored a majority of its industrial and manufacturing base. But, fueled in part by the Inflation Reduction Act, the trend has reversed itself in recent years. And that newfound onshoring push has created an ecosystem of companies that require “this intermediate step,” Woodruff said.
The strategy builds on Frank’s experience as CEO of semiconductor sub-system supplier HIS Innovations Group, which he grew from an $11 million valuation to $120 million before its 2023 acquisition. Today, for small investors with operational expertise like AIIP, the next wave of opportunity lies in “taking a business and enhancing or repositioning its capabilities to benefit from the massive tailwinds” of AI, Woodruff said. The fund is targeting 30% net annual returns.
The enthusiasm — and ambition — surrounding the buildout of AI is also beneficial when it comes to finding investors in the fund, especially in a tough fundraising environment. In 2024, global private equity fundraising was down 24% year over year, according to a recent McKinsey analysis.
From LPs, “the interest in AI-linked investing is massive,” Woodruff said. “The [AI-linked] returns from public markets… have gotten people’s attention. Some of it is driven by fear of missing out, which is not necessarily a healthy motive for making allocation decisions.”
But the many conversations AIIP is having with investors are pointing to a desire to invest in what Frank describes as the “picks and shovels opportunity within AI.” Investors, he added, “are very interested in the concept of investing in hard assets within that infrastructure layer, like manufacturing, and technical and engineering services supporting the space.”
That said, first-time funds are always particularly hard to raise, and Woodruff said AIIP is avoiding the “middle universe of potential investors, intermediaries, and institutions that are not likely to consider a first-time fund,” taking a “barbell approach to pursuing LPs” instead.
On the one hand, AIIP is focusing on high-net-worth individuals who have experience in private markets and want AI infrastructure exposure. On the other, it’s pursuing family offices, endowments, and fund of funds for a potential anchor investment in exchange for a stake in the company.
AIIP is hoping to hold a first close and execute its first two transactions in the next couple of months.
A version of this story was published in the AI-Energy Nexus newsletter on March 5. Subscribe to get pieces like this — plus expert analysis, original reporting, and curated resources — in your inbox every Wednesday.
