Jan 9, 2024 - Business

The existential race to fund AI companies

Illustration of a robot hand placing a coin inside a piggy bank with rectangles of dollar bills creating a geometric patten behind it

Illustration: Natalie Peeples/Axios

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).

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.

The bottom line: Silicon Valley loves a competition.

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