‘Make 1,000 flowers bloom’: AI funding frenzy escalates

When four leading artificial intelligence researchers left Google this year to found a start-up called Mobius AI, they weren’t sure what their product might be — only that it would include AI technology that has its own photos and videos could generate.

Within about a week, two of Silicon Valley’s largest venture capital firms, Andreessen Horowitz and Index Ventures, had burst in with a financing offer, three experts said.

Suddenly Mobius — little more than four men and a laptop — was valued at about $100 million, a usually high number for a start-up that was only a week or so old, the people said. As word of the deal leaked, other investors came down to urge Mobius to take their money as well, they said.

Over the past few months, a gold rush for startups working on “generative” artificial intelligence has escalated into rampant deal-making mania. Interest has grown so fast that valuations of AI startups are rising above those of the 2021 “everything bubble,” with investors scouring the rosters of companies like Google, Meta and OpenAI for AI experts who might be interested to start their own business.

The funding race has been heated since ChatGPT, the chatbot created by OpenAI, went viral last year by showcasing the power of AI to generate its own tweets, emails, articles, replies and ideas. Even as investors expect the bankruptcy of Silicon Valley Bank, an institution many tech startups relied on last week, to jeopardize startup funding, there is still a discrepancy between the number of opportunities in the field of artificial intelligence and available money. to finance them.

This is due to the scarcity of AI companies and the potential of the technology. With few experts in the field, and most of them working at a handful of big tech companies, only a few generative AI startups – such as Stability AI and Jasper – have broken through. Investors desperate for the next big thing compete fiercely to invest in these companies, offering some AI entrepreneurs nine-figure valuations for little more than an idea and a resume.

“We’re at that stage of the market where it’s like having 1,000 flowers bloom,” said Matt Turck, an investor specializing in AI at venture firm FirstMark. He added that closing the deal came at an otherwise bleak time for technology marked by layoffs, cost-cutting and an IPO drought.

Andreessen Horowitz did not respond to a request for comment. Index Ventures declined to comment on Mobius’ funding.

Blooming flowers include Dust, a start-up founded by former OpenAI employees. Dust is approaching a $5 million funding round led by Sequoia Capital that will value it at $30 million to $40 million, two people with knowledge of the situation said. The round was competitive, with term sheets offering valuations as high as twice that, one of the people said.

Perplexity AI, a start-up founded by former employees of OpenAI, Google and Meta, is raising $20 million to $25 million led by NEA, which values ​​the company at about $150 million, said two people familiar with the situation. And LangChain, a start-up working on software that helps other companies integrate AI into their products, has raised funding from Benchmark, a person with expertise said.

That follows the $13 billion OpenAI raised from Microsoft, which includes $10 billion in January, and the $300 million raised this year by Anthropic, another AI start-up.

Dust and LangChain declined to comment. Various aspects of the funding rounds were previously reported by Business Insider, The information And Newcomer.

At Y Combinator, the start-up incubator, at least 50 of the 218 companies in the current program are working on generative AI, according to a count from Truewind, an AI accounting startup that is part of the program. Truewind CEO Alex Lee said ChatGPT has helped investors, prospects and potential employees understand the capabilities of the technology.

“You used to go in there and say, ‘We’re doing something with AI,’ and it’s hard to imagine exactly what that looks like,” said Mr. Lee. “Now they say, ‘Oh, I’ve been playing around with ChaptGPT and I can imagine how I could use this in my world.'”

He declined to comment on his company’s fundraising ahead of Y Combinator’s demo day, when companies pitch investors in April.

While more mature AI startups have already raised large amounts of money, they can’t afford to ignore the latest overtures from investors, says Mike Volpi, an investor at Index Ventures who sits on the board of AI start-up Cohere.

That’s partly because AI technologies like ChatGPT, which learn by analyzing massive amounts of digital data, require a lot of computing power, which is expensive. Mr. Volpi estimated that startups would need at least $500 million to develop their own grand language model, the technology that underpins ChatGPT.

At a technology conference in Los Angeles hosted by investment firm Upfront Ventures this month, AI was inescapable. The event started with a wacky video sketch of a venture capitalist giving a ChatGPT generated speech. Things quickly spiraled out of control, with the investor confidently breaking out misinformation from the bot as a punchline.

Speakers — including Al Gore; Marc Benioff, CEO of Salesforce; and V Pappas, a top executive at TikTok — weighed in from there, especially praising the technology’s transformative potential. A panel of AI specialists said they welcomed the sudden attention, with Phil Blunsom, head of science at Cohere, noting that he’s been working on language modeling for 20 years and until recently “absolutely nobody was interested in it”.

Some investors debated whether AI startups would be pulled over by more established players with deeper pockets. Given the high computing costs, some said big players like Microsoft and Alphabet, Google’s parent company, had too much of an advantage. Google bought the AI ​​lab DeepMind, which develops a wide range of technologies as an Alphabet subsidiary, for $650 million in 2014.

Last week, Salesforce announced a $250 million fund for investments in generative AI startups, in addition to new investments in Cohere, Anthropic, and others.

“There are some moments in technology where you really see a generational leap forward with revolutionary technology,” said John Somorjai, who leads Salesforce’s venture investments. “These companies are the next billion-dollar opportunity in software.”

Sam Lessin, a venture capitalist at Slow Ventures, said he didn’t think the technological advances in AI translated into opportunities for startups. The best way to invest in AI, Lessin said, is to buy the publicly traded shares of big technology companies.

“The vast majority of the loot will go to the incumbents,” he said.