AI Startups Trade Independence for Big Tech’s Deep Pockets – News

An aerial view of the Silicon Valley area. — AFP

Published: Sun Jul 28, 2024 15:49

Such is the case with fading startups: some of Silicon Valley’s most promising companies in the fast-growing generative artificial intelligence (AI) industry have been acquired or folded into American tech giants.

In recent months, founders and key executives of promising companies such as Inflection AI and Adept have quietly exited the scene due to a lack of funding to join world-leading technology companies through discreet transactions.

Critics say the deals are essentially acquisitions that Microsoft and Amazon have specifically planned to avoid the attention of antitrust regulators, something the companies vehemently deny.

Meanwhile, companies like Character AI are reportedly struggling to raise the cash needed to remain independent, and some, like French startup Mistral, are considered particularly vulnerable to being acquired by a tech giant.

Even ChatGPT’s creator, OpenAI, is tied to Microsoft, the world’s largest company by market capitalization.

Microsoft is helping to secure OpenAI’s future with a $13 billion investment in exchange for exclusive access to the startup’s industry-leading models.

Amazon has its own agreement with Anthropic, which produces its own high-performance models.

To join the revolution that started with the groundbreaking launch of ChatGPT, you need financial resources that only tech giants like Microsoft, Amazon, and Google can afford.

“Those with the big money make the rules and shape the outcomes that work in their favor,” said Sriram Sundararajan, a technology investor and professor at Santa Clara University’s Leavey School of Business.

In a departure from typical Silicon Valley lore, generative AI won’t be born in some founder’s garage. This type of AI, which creates human-like content in a matter of seconds, is a special kind of technology that requires colossal levels of computation from specialized servers.

“The startups were founded by former research leaders at big tech companies and they require resources that only big cloud providers can provide,” said Brendan Burke, an AI analyst at Pitchbook, who tracks the venture capital world. “They’re not following the traditional entrepreneurial path of doing more with less; they really want to replicate the conditions they experienced working in a highly funded research lab.”

Many of these founders, including those at Inflection and Adept, came from Google or OpenAI.

Mustafa Suleyman, the former head of Inflection, was a leader at Google DeepMind—and now he’s left his startup, taking key employees with him, to head Microsoft’s consumer AI division. Inflection still exists on paper, but it’s been stripped of the assets that gave it value.

“It makes a lot of sense to partner with big tech companies,” said Abdullah Snobar, executive director of DMZ, a Toronto startup incubator. Their deep pockets help “grease the wheels and keep things moving.”

But partnering with established tech giants carries the risk of “killing the competition,” potentially creating a situation where “these three big tech companies are sucking out all the potential” of creativity and innovation, he added.

The burning question in Silicon Valley is whether government regulators will do anything about it.

Large technology companies are increasingly in the spotlight for their willingness to acquire smaller companies.

Israeli cybersecurity firm Wiz this week scrapped plans to sell itself to Google in what would have been the largest transaction in the giant’s history — reportedly because the takeover would not survive scrutiny by antitrust regulators.

In the case of Inflection, antitrust regulators in the United States, European Union and Britain have said they will look closely at its ties to Microsoft. Amazon’s deal with Adept has raised questions at the Federal Trade Commission in Washington.

John Lopatka, a law professor at Penn State University, said that “antitrust enforcers will have a hard time blocking the arrangements” from Inflection and Adept. But “that doesn’t mean they won’t try.”

On Tuesday, regulators from the U.S., Europe and the U.K. signed a joint statement insisting they will not allow big tech companies to rule the nascent AI industry with impunity, a sign that “regulation is catching up with AI,” Sundararajan warned.