Billion dollar babies: The emerging AI monoliths

As billions of dollars of investment clusters around select GenAI players - can anyone else compete?

Happy Friday all,

One of my predictions for 2023 was that this would be the year of mass adoption for Generative AI — and that crazy money would start flying around — both to back the new ‘GenAI’ kids on the block, and to cement the dominance of established tech giants through strategic investments, partnerships, and acquisitions.

Over the past six months, we’ve witnessed leading investors, concentrating huge sums of money on a few key players in a bid to own and build the AI monoliths of the future.

Let’s remind ourselves of some of the notable developments:

Oct 2022

🦄 Stability AI was among the frontrunners. Riding high on the success of Stable Diffusion, it secured $101m during its seed round in October, instantly attaining Unicorn status. The funding round, just 51 days after Stable Diffusion's launch, signalled the start of an unfolding trend. It's worth noting, however, that Stability AI—now valued at $4bn—has been reportedly finding it tough to secure additional funding this year, a claim the company refutes.

Jan - May 2023

🚀 Open AI was hot on their heels. The introduction of Chat GPT at the close of November 2022 led to an additional $10bn investment from Microsoft by January 2023, skyrocketing OpenAI’s valuation to an impressive $29bn. Quite an achievement for a company that registered a loss exceeding half a billion dollars ($540m) in 2022.

Kudos to Microsoft though, they were quick to spot the commercial potential of GenAI, understanding how it could uniquely elevate their market leadership through the OpenAI alliance. A major perk of this deal was that Microsoft would serve as OpenAI's exclusive cloud provider.

💸 Anthropic, founded in 2021 by Open AI alumni as a rival in LLM development, secured $450m in its Series C round in May, a mere three months after Google’s $300m investment. This pushed its valuation above the $4bn mark.

June 2023

❗By June, Mistral AI, a French startup, raised €113m merely four weeks post-formation. Led by veterans from Google and Meta, the firm plans to create 'superior' Generative AI models. Interestingly, they currently lack a tangible product and their website is just a placeholder.

📣 That same month, Databricks announced the acquisition of MosaicML for $1.3bn on June 26th. The two-year-old company, had $64m in investment to construct open-source LLMs. Databricks' strategy is to carve out a share of the 'enterprise LLM' market segment, betting that Mosaic's model development will streamline the process for their customers to build and implement AI models with their proprietary data.

💰 Merely three days later, Inflection AI declared a mammoth funding round of $1.3bn, taking its valuation to $4bn. Spearheaded by ex-Deepmind co-founder Mustafa Suleyman, the announcement came two months after the launch of 'Pi'— Inflection’s ‘personal AI assistant.’

Investors include Microsoft, Nvidia, CoreWeave, and tech billionaires Bill Gates, Reid Hoffman, and Eric Schmidt. Much like the OpenAI/Microsoft deal, a part of this investment will be returned to the investors. Inflexion's ambitious plan is to create the world's largest AI cluster, powered by Nvidia’s GPUs and CoreWeave’s cloud computing platform.

So what can we glean from all of the above?

1️⃣ HUGE POTENTIAL ABUNDANCE: The GenAI space is hot, and investors don’t want to miss out. The potential ROI is staggering, particularly when we begin to envisage enterprise applications and the transformation of all knowledge work via an AI layer that permeates... everything.

2️⃣ INVESTMENT IS CLUSTERING: While hefty sums of money are being poured in, investment is also becoming increasingly concentrated. More money is being funnelled into fewer companies, often with recurring investors. It could be challenging (maybe even impossible?) for other startups to compete against these well-funded, well-equipped GenAI players who, I suspect, will start to monopolize the scene, thanks to their access to capital, talent, and infrastructure.

3️⃣ EMERGING AI MONOPOLIES: Tech titans like Microsoft, Google, and Nvidia were among the first to envision the magnitude of the impending AI revolution. They have been spearheading technology development, investments, and partnerships, positioning themselves to reap its benefits. The growing dominance of the tech giants will be accelerated by those who best navigate the AI revolution.

4️⃣ ANTICIPATE BIG LOSSES: Alongside abundant capital, there will be significant losses. Investors are keen not to miss out on the promise of AI returns, but as the market consolidates around a handful of key players with the resources to scale GenAI, many others will fail. Let’s be real, 99.99% of companies building LLMs will not be able to compete with the likes of an OpenAI/Microsoft partnership, right?

I will be back next week with a PIONEER Interview with Nathan Benaich, one of the most interesting GenAI investors where we get into all of the above.

For now, enjoy the weekend!

Namaste,

Nina