The existential race to fund AI companies
Pouring vast amounts of capital into generative artificial intelligence startups is existential, both to Big Tech and venture capitalists.
Why it matters: Corporate and traditional VCs may be happy to invest alongside one another, but there's also a fierce competition going on.
Driving the news: In recent weeks, reports surfaced that both OpenAI and Anthropic were raising new funding (at astronomical valuations, natch).
- OpenAI is reportedly in talks to raise funding at a $100 billion valuation.
- Anthropic is said to be raising $750 million at an $18.4 billion valuation, in a round led by existing investor Menlo Ventures.
The big picture: In 2023, investments of more than $18 billion by Microsoft, Google and Amazon in just three companies (as of Dec. 8) represented two-thirds of the global venture investment into generative AI startups, according to data from PitchBook published by the Financial Times last month.
- And that doesn't even include the investments made by Salesforce, Databricks, Nvidia and others.
Between the lines: Big Tech companies need to make sure they're on the generative AI boat — history is full of examples of incumbents that entirely missed the next technology wave and paid dearly for it.
- Even these very same tech giants have been late to — or missed entirely — some recent technological shifts like mobile technology.
Be smart: The mobile era was incredibly lucrative for VCs as they seeded virtually every company that built a huge business enabled by the ubiquity of smartphones.
- And yes, Apple and Google did ultimately come to run the two major app stores we have today; Meta (then Facebook) eventually caught up by acquiring Instagram, then rolling out of mobile ads.
The intrigue: A number of companies say they want to be neutral, and are raising from multiple Big Tech companies and investors.
Meanwhile: Traditional venture firms have also invested significant sums of capital into the category.
- Multi-stage firms like Andreessen Horowitz, Sequoia Capital and General Catalyst are aggressively investing in AI startups — including those building foundational models.
- Some are placing various bets, others are taking a more concentrated strategy.
In some ways, it's reminiscent of the ride-hailing and scooter rental wars, for example, with big venture firms staking their bets on their preferred (or available) company.
Yes, but: There's still a chance this could all blow up.
- On Dec. 27, the New York Times filed an unprecedented copyright infringement lawsuit against OpenAI (and Microsoft).
- Investors who spoke to Axios' Dan Primack about this risk in the fall didn't seem concerned, but how this issue shakes out could have massive implications.
The bottom line: Silicon Valley loves a competition.