Just sign up for the Big Tech myFT Digest to receive regular updates on the latest advancements.
The individual behind Sifted, a startup-focused platform in Europe backed by the Financial Times, has been making waves in Silicon Valley. A prominent new venture capitalist, known by the rather unflattering acronym Mang, has been causing quite a commotion. The leading acquirers in the artificial intelligence startup realm are Microsoft, Amazon, Nvidia, and Google, which rank among the top five largest US companies by market capitalization. This trend has led them to shift their focus towards the traditional Sand Hill Road venture capitalists, who pride themselves on their forward-thinking strategies.
Microsoft has taken a significant leap into this domain by backing Inflection AI and investing a substantial $13 billion in OpenAI. Anthropic, a venture founded by former members of OpenAI, has secured substantial funding from both Amazon and Google. Furthermore, Nvidia has shown support for Inflection AI, Databricks, Cohere, and has co-invested in Runway and Hugging Face alongside Google.
Last year, the Mangs were involved in investment deals related to data and AI startups totaling a staggering $23 billion, representing roughly 30% of the overall investments, as per Apoorv Agrawal, a partner at Altimeter, an investment firm. However, Agrawal highlights that these investments hold strategic importance for the Mangs beyond just economic considerations.
These moves have stirred unease among traditional venture capitalists. Bill Gurley, a dynamic partner at Benchmark, recently hinted that the Mangs might have uncovered a novel approach to boosting their revenues, which he views as potentially risky in the long run.
The intricacies of these investment agreements go beyond their surface appeal, as Gurley’s comments indicate. While Microsoft’s collaboration with OpenAI has faced scrutiny over potential antitrust concerns, its primary objective is to accelerate progress and foster competition. This consolidation of corporate power could potentially lead to a formidable intellectual capital and computational barrier in the field of AI.
In a way, large corporations investing in startups is not a novel concept, with VC firms having engaged in such practices for years. Tech giants like Cisco, Intel, and Palantir have historically excelled in this arena. Google, for instance, established Google Ventures as an independent venture capital entity in 2009, now known as GV, boasting a portfolio of over 400 companies and managing assets worth around $8 billion.
However, the recent investments by the Mangs transcend mere financial transactions, incorporating elements beyond direct equity participation. Objectives such as accessing technical expertise, expanding customer base, and eliminating competitors are also on the agenda. Microsoft, for instance, has integrated OpenAI technology into its own services. In some cases, renowned cloud computing providers like Microsoft, Amazon, and Google have offered computing resources in lieu of cash. Nvidia, a leading hardware manufacturer, has supplied a limited number of graphics processing units for discussions, crucial for running cutting-edge AI models.
In the past, major tech firms might have opted to outright acquire these startups. With the Mangs collectively generating \(276 billion in operating profits in 2023 and allocating \)108 billion towards capital expenditures, they are certainly not lacking in financial resources, as noted by Agrawal. However, regulatory watchdogs in Washington are keen on taming the dominance of major tech players.
This scenario hints at the possibility of these substantial investments being utilized as a strategy to circumvent regulations. Major tech players are effectively locking in their clientele while maximizing their profits. Authorities are currently investigating whether certain cloud computing entities, like Hotel California, impose hefty “egress” fees on customers to deter them from switching providers.
Initial venture capital investors in AI startups associated with the Mangs may benefit from the added support and valuations offered by major tech firms. Nonetheless, given their close connections to the Mangs, they may question the prospects of divesting their investments or risk being engulfed entirely.
The allure of relational AI has enticed prominent researchers to depart from major tech corporations and establish their startups, leveraging their ability to attract VC funding easily. One notable example is Mistral from France, founded by former employees of Google and Meta, which garnered attention at Davos recently. Enthusiastic venture capitalists are also pursuing AI startups aiming to deploy these systems across various industries. Albert Wenger, managing partner at Union Square Ventures, emphasizes that groundbreaking technologies often undergo a hype cycle before achieving widespread success.
While the Mangs are anticipated to dominate the AI market’s upper echelons, investors believe that ample opportunities still exist in the industry’s dynamic landscape. The true extent of their impact will only become apparent when the bubble eventually bursts.
AI: A blessing or a curse for society, what’s your take? FT Tech
