It is the case of the vanishing start-up: Some of Silicon Valley’s most promising names in the fast-developing generative artificial intelligence (AI) space are being gobbled up by or tied to the hip of US tech giants.
Short on funds, in the past few months promising companies like Inflection AI Inc or Adept AI Labs Inc have seen founders and key executives quietly exit the stage to join the world’s dominant tech companies through discrete transactions.
Critics believe these deals are acquisitions in all but name and have been especially designed by Microsoft Corp or Amazon.com Inc to avoid the attention of competition regulators, which the companies strenuously deny.
Photo: AP
Meanwhile, firms like Character AI are reported to be struggling to raise the cash needed to remain independent, and some, like French start-up Mistral AI, are thought to be especially vulnerable to being bought out by a tech giant.
Even ChatGPT’s creator OpenAI is locked in a relationship with Microsoft, the world’s biggest company by market capitalization. Microsoft helps guarantee OpenAI’s future with US$13 billion in investment in return for exclusive access to the start-up’s industry-leading models. Amazon has its own deal with Anthropic PBC, which makes its own high-performing models.
Joining the revolution brought by the era-defining release of ChatGPT requires a supply of cash that only tech behemoths like Microsoft, Amazon or Google can afford.
“The ones with the big money define the rules and design the outcomes that play in their favor,” said Sriram Sundararajan, a tech investor and adjunct faculty member at the Leavey School of Business at Santa Clara University.
Breaking from typical Silicon Valley legend, generative AI would not be developed out of some founder’s garage.
That type of artificial intelligence, which creates human-like content in just seconds, is a special breed of technology that requires colossal levels of computing from specialized servers.
“Start-ups have been founded by former research leaders at big tech companies, and they require the resources that only large cloud providers can make available,” said Brendan Burke, AI analyst at Pitchbook, which tracks the venture capital world.
“They’re not following the traditional entrepreneurial journey of doing more with less, they’re really looking to recreate the conditions that they experienced working in a highly funded research lab,” Burke said.
Many of these founders, including those at Inflection or Adept, came from Google or OpenAI. Mustafa Suleyman, the former boss of Inflection, was a leader at Google DeepMind and has now left his start-up, with key employees in tow, to head up the consumer AI division at Microsoft.
Inflection still exists on paper, but has been stripped of the very assets that gave it value.
Lining up with the big tech companies “makes a lot of sense,” said Abdullah Snobar, executive director at DMZ, a start-up incubator in Toronto. Their deep pockets help keep “the wheels greased and things moving forward.”
However, aligning with established tech behemoths also risks “killing competition,” potentially creating a situation where “these three big tech companies [are] sucking up all the juice” of creativity and innovation, he added.
The burning question in Silicon Valley is whether government regulators would do anything about it. Big tech companies are increasingly in the spotlight for their appetite to eat up smaller firms.
US, EU and UK regulators on Tuesday signed a joint statement saying that they would not let big tech companies run roughshod over the nascent AI industry.
It is a sign that “regulation is catching up to AI,” Sundararajan warned.
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