With all the analysis on domestic and international political events and their potential impact on M&A trends, it’s easy to miss that 2016 represented the continuation of a meaningful paradigm shift in private equity. With increasing frequency, traditional private equity investors are focusing on tech.

Even in the relatively slow first three quarters, private equity firms invested over $135 billion in tech during 2016 (Source: Pitchbook).

Why has private equity historically been cautious about tech? Tech companies have always caused valuation headaches. No two tech companies are alike, and even mature companies with several years of revenue or earnings typically won’t lend themselves to comparative multiple-based valuation metrics. Too many times firms find themselves competing with strategic bidders, each offering a different vision and synergies for the target. Private equity firms investing in tech must not only place bets on the quality of the management team and the company’s product offerings (bets with which they are familiar), but also on the company’s ability to compete long term in an industry that may be reinventing itself on timelines as short as 48 months. Add leverage to such a scenario, and it is easy to see why tech investing has been challenging for the traditional private equity model.

What has changed? Traditional private equity firms have upped their game dramatically in acquiring world class operational and micro-sector industry expertise, and are simply much better positioned to assess the risks and rewards of tech opportunities. Gone are the days when law firms and financial advisors can simply trot out lists of M&A transactions done in the space and expect the private equity firms to be satisfied. Private equity firms want to compete head-to-head with the in-house expertise of the most sophisticated strategics, and demand their advisors to be on the cutting edge of understanding the micro-sector in which the target operates. Armed with the right in-house and outside experts, private equity firms are far more confident in their ability to compete in tech.

As private equity firms seek to boost returns, the allure of the upside associated with tech will likely drive private equity even further into tech in 2017. Ultimately, this long term trend will be determined by their success, but given their massive investment in the right kind of expertise, our best guess is that tech is here to stay.