It has not been publicly disclosed how much Microsoft is compensating all of Inflection AI’s investors as part of its uniquely structured acquisition deal encompassing the co-founders, the majority of the staff, and the technology. Microsoft declined to comment when questioned about this.
However, undisclosed sources have revealed to The Knowledge that Microsoft is allocating approximately \(650 million for this acquisition. This amount includes \)620 million designated for non-exclusive licensing fees for the technology, allowing Inflection to license it elsewhere, and $30 million to ensure that Tone will not pursue legal action against Microsoft regarding their recruitment activities involving co-founders Mustafa Suleyman and Karén Simonyan.
Reid Hoffman, a Microsoft board member and co-founder of Inflection, who is also an investor through his VC firm Greylock, expressed optimism in a LinkedIn post earlier this week. He stated that “all of Inflection’s investors are likely to have a good outcome today, and I anticipate fine future upside.”
According to The Information, investors who participated in the initial \(225 million funding round are expected to receive 1.5 times their investment, while those involved in the subsequent \)1.3 billion round will receive 1.1 times their investment. Despite the discrepancy in the math totaling $650 million, these investors will also retain their equity in the remaining entity of the startup.
The restructured entity will shift its focus from developing the personalized AI chatbot Pi on Nvidia’s extensive computing infrastructure to operating as an AI studio, assisting other companies in harnessing large-language model AI.
Inflection did not respond to a request for comment.
Established in 2022 as a potential rival to OpenAI, Inflection secured over a billion dollars at a $4 billion valuation from prominent investors such as Bill Gates, Microsoft, Eric Schmidt, Dragoneer Investment Group, Nvidia, and others.
Microsoft’s move to acquire Inflection can be seen as a strategic maneuver to provide a soft landing for Gates and his VC firm, resolving their costly AI venture. This acquisition aligns with the trend of major cloud vendors partnering with different chatbot providers. Microsoft collaborates with OpenAI, while Google and Amazon are associated with Anthropic, and Cohere partners with companies like Oracle and Salesforce.
The decision to dismantle Inflection may be justified, considering allegations of bullying behavior against Suleyman in a 2021 investigation by The Wall Street Journal. Microsoft, under the leadership of CEO Satya Nadella, known for its empathetic approach, aims to leverage the technical expertise and AI knowledge of Inflection’s co-founders.
Despite its affiliation with OpenAI, Microsoft has valid reasons to seek an alternative for its AI strategy, especially amid regulatory scrutiny of agreements with OpenAI and other entities. Reports of strained relationships between Microsoft and OpenAI engineers further emphasize the need for a backup plan in critical AI initiatives.
In light of potential regulatory scrutiny, akin to Microsoft’s investment in OpenAI, the acquisition of Inflection raises questions about possible regulatory examinations of this deal.
