It’s a story of a disappearing startup: Some of Silicon Valley’s most promising names in the fast-developing field of generative AI are being swallowed up or attached to US tech giants.
A lack of funding has seen promising companies like Inflection AI and Adept in the past few months see their founders and key executives quietly exit the scene to join some of the world’s leading technology companies through separate transactions.
Critics believe the deals are acquisitions in name only, specifically engineered by Microsoft and Amazon to avoid scrutiny from competition regulators, a charge the companies strongly deny.
Meanwhile, companies like Character AI are reportedly struggling to raise the capital they need to remain independent, and some, like French start-up Mistral, are considered particularly at risk of being acquired by a tech giant.
Even ChatGPT developer OpenAI has ties to Microsoft, the world’s largest company by market capitalization.
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Microsoft will future-proof OpenAI with a $13 billion investment in exchange for exclusive access to the startup’s industry-leading models.
Amazon has its own deal with Anthropic, which makes its own high-performance models.
To participate in the revolution brought about by ChatGPT’s era-defining release, you need the kind of funding that only tech giants like Microsoft, Amazon, and Google can provide.
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“The very wealthy write the rules and engineer outcomes that favor them,” said Sriram Sundararajan, a technology investor and adjunct lecturer at Santa Clara University’s Leavey School of Business.
Contrary to typical Silicon Valley myth, generative AI isn’t developed in a founder’s garage.
This kind of artificial intelligence, which creates human-like content in just a few seconds, is a specialized type of technology that requires massive levels of computing from dedicated servers.
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“Startups are founded by former research leaders from big tech companies and need the resources that only the big cloud providers can provide,” said Brendan Burke, an AI analyst at PitchBook, which tracks the venture capital industry.
“Instead of taking the traditional entrepreneurial path of doing more with less, they are trying to recreate the situations they experienced when working in heavily funded laboratories.”
Many of the founders, including those of Inflection and Adept, hail from Google and OpenAI.
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Inflexion’s former president, Mustafa Suleiman, was a leader at Google’s DeepMind before leaving the startup, taking key employees with him, to head Microsoft’s consumer AI division.
The change still exists on paper, but the very elements that gave it value have been lost.
Partnering with a big tech company “makes a lot of sense,” says Abdullah Snover, executive director of DMZ, a Toronto startup incubator, whose deep pockets can help “smooth things forward.”
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But partnering with existing tech giants also risks “killing competition,” he added, and could create a situation where “these three big tech companies suck out all the creative and innovative energy.”
The immediate question in Silicon Valley is whether government regulators will do anything about it.
Big tech companies are increasingly attracting attention for their willingness to acquire smaller companies.
Israeli cybersecurity company Wiz this week backed out of plans to sell to Google in what would have been the company’s biggest deal ever, after the acquisition reportedly failed to pass competition regulators.
Inflexion said antitrust regulators in the U.S., European Union and Britain would closely scrutinize the company’s relationship with Microsoft, while Amazon’s deal with Adept has raised questions at the Federal Trade Commission in Washington.
“It will be difficult for antitrust enforcement agencies to block the Inflexion-Adept deal,” said John Lopatka, a law professor at Pennsylvania State University.
But that doesn’t mean they won’t try.
Regulators from the United States, Europe and the UK signed a joint statement on Tuesday saying they would not allow the emerging AI industry to be ignored by big tech companies.
This is a sign that “regulation is catching up with AI,” Sundararajan warned.
