Big tech companies have outspent venture capital groups with investments in generative AI startups this year, as established companies use their financial muscle to dominate the hugely popular sector.
Microsoft, Google and Amazon struck a series of blockbuster deals last year, accounting for two-thirds of the $27bn raised by start-up AI companies in 2023, according to new data from private market researcher PitchBook.
The huge spending explosion following OpenAI’s ChatGPT launch in November 2022 highlights how Silicon Valley’s biggest groups are crowding out traditional tech investors for some of the biggest deals in the industry.
The rise of generative AI — systems capable of producing human-like video, text, images and audio in seconds — has also attracted top Silicon Valley investors. But VCs haven’t been spared, as they’ve been forced to cut costs while adjusting to high interest rates and falling valuations for their portfolio companies.
“Over the past year, we’ve seen the market quickly consolidate around a handful of foundational models, with big tech players coming in and pouring billions of dollars into companies like OpenAI, Cohere, Anthropic and Mistral,” Nina said. said Achadjian, a partner. Citing some of the top AI startups in US venture firm Index Ventures
“For traditional VCs, you had to be early and you had to be confident — which meant knowing about the latest AI research and knowing which teams from Google DeepMind, Meta and others. are coming out,” he added.
Contracts like Microsoft’s $10 billion investment in OpenAI, as well as billions of dollars raised by San Francisco-based Anthropic from both Google and Amazon, have nearly tripled total spending on AI groups from previous records. Helped to increase. Two years ago, $11 billion was set.
Venture capital investing in tech hit record levels in 2021, as investors took advantage of ultra-low interest rates to raise and deploy a wide range of funds across a range of industries, particularly those affected by Covid-19. 19 has been the most disrupted.
Microsoft has also pledged $1.3 billion to Inflection, another creative AI startup, as it looks to steal a march on rivals like Google and Amazon.
Building and training generative AI tools is an intensive process, requiring enormous computing power and cash. As a result, startups have preferred to partner with big tech companies that can provide cloud infrastructure and access to the most powerful chips as well as dollars.
That has sharply boosted the valuations of private startups in the space, making it harder for VCs to bet on companies at the forefront of technology. An employee stock sale at OpenAI is seeking to value the company at $86bn, nearly three times the valuation it received earlier this year.
However, VCs are not absent from the market. Thrive Capital, Josh Kushner’s New York-based firm, is the lead investor in OpenAI’s employee stock sale, having already backed the company earlier this year. Thrive continues to invest in 2023 amid declining venture capital spending.
Paris-based Mistral has raised about $500 million from investors including venture firms Andreessen Horowitz and General Catalyst, and chipmaker Nvidia since it was founded in May this year.
Some VCs are looking to invest in companies that are building on the so-called “foundation models” of building applications developed by OpenAI and Anthropic, much in the same way that smartphones have introduced apps to mobile devices. It began to be produced in the years after it happened.
“It’s a myth that only foundation model companies matter,” said Sarah Gow, founder of AI-focused venture firm Conviction. “There is a huge space of yet unexplored application domains for AI, and many valuable AI companies will be fundamentally new.”
Additional reporting by Tim Bradshaw