Artificial intelligence Politics and regulation Startups Venture

Eye On AI: With Altman Saga Over, What’s The Next AI Drama?

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This column is a look back at the week that was in AI. Read the previous one here.

Unless you have been living under a rock — or somehow still in a tryptophan-induced sleep from Thanksgiving — we all know Sam Altman is back at OpenAI and all is right with the world again.

Except it may not be when it comes to investing in the space.

The breakdown in communication between Altman and the company’s old board of directors — which did not include investors — seemed to highlight a few issues with investing in AI that might be hard to stomach for many would-be investors.

Now, it’s important to remember OpenAI has a unique — possibly unsustainable — structure in that it’s a nonprofit organization whose board also controls its for-profit businesses. That isn’t the case for other generative AI startups that have raised hundreds of millions of dollars at sky-high valuations, but that doesn’t mean somewhat similar dramas can’t occur.

First is the ethical dilemma many of these startups are trying to grapple with as they struggle to put guardrails on a technology that holds both unique promise and unbelievable danger.

Employees and investors often have thoughts as to what is best for companies. Many AI employees seemingly want to stress a slow-and-thoughtful process when it comes to the development of AI and its models. Investors like to stress innovation — and also eventually making money — which can bump up against employees’ will.

In AI, that can create an important schism, as talent is nearly impossible to find and can be even harder to keep — especially as the likes of Google and Microsoft try to poach it. The Altman saga showed the power of OpenAI’s employees, as nearly all of them signed a letter to the company’s board saying they will leave the generative AI startup and move to Microsoft unless the board resigns and brings back Altman and former President Greg Brockman.

Investors will have to grapple with these startups’ employees who have concerns that may not be their concerns — and they will have to listen.

The other issue is what could be legal and regulatory concerns. No one knows what is coming, and the OpenAI soap opera likely only made regulatory look even closer at the space as one of the most valuable private companies in the world was threatening to destroy itself.

Investors often say they welcome regulation — but investors say a lot of things. Regulations can create obstacles for businesses that affect those companies’ success and therefore VC returns.

A VC told me earlier this month that he expects some of the legal dilemmas AI companies face to lead to a slowdown in the flood of funding the startups are seeing as these concerns take the forefront.

However, it also is very possible — if not likely — investors won’t care. Earlier this week, The Information reported OpenAI’s new board will not include representatives from investors such as Microsoft, Khosla Ventures, Thrive Capital and Sequoia Capital. Microsoft is believed to have invested more than $11 billion so far in the AI giant.

None of those investors have voiced public displeasure and likely none are interested in divesting their stake in the company. In fact, Thrive Capital and others are still moving forward with a tender offer to buy OpenAI employee shares at a price that values the company at $85 billion.

Even as the OpenAI drama was unfolding, one of its international competitors made headlines. Israel-based AI21 Labs said it closed a $208 million Series C funding at a valuation of $1.4 billion — nearly three months after it announced it had raised $155 million of the same Series C from investors that included Google and Nvidia at the same valuation.

So maybe nothing will drive investors away from the space — after all a little drama is expected when you are dealing with Silicon Valley.

Things that caught our eye and other stuff:

  • It was just slightly more than a year ago London-based visual AI startup Stability AI got its horn as a brand-new unicorn after locking up a $101 million raise led by Coatue, Lightspeed Venture Partners and O’Shaughnessy Ventures. This week, Stability found itself back in the news, as Bloomberg reported the company has explored selling itself as management faces pressure from investors due to its finances. Stability held early-stage conversations with multiple companies and has approached both Cohere and Jasper to be potential buyers, according to the report. Coatue also called for CEO Emad Mostaque to step down in a letter to management last month, according to the story. Stability just raised $50 million from Intel earlier this month.
  • Speaking of Stability, we’ve seen a handful of video and editing AI platforms come to the fore. This week, Palo Alto, California-based Pika announced it has raised a $35 million Series A — also led by Lightspeed Venture Partners — just six months after the company emerged from stealth. Pika offers a lot of cool new tools for those interested in video and editing, including being able to extend existing videos or change the style of a video — such as making it into animation.
  • Back in September, Imbue locked down a massive $200 million Series B that valued the AI research lab at $1 billion. This week, the San Francisco-based startup was back in the news, as it agreed to a $150 million deal with Dell Technologies — which has been relatively quiet in the AI race — to use its servers to process the amount of data needed to develop its AI systems and build foundation models optimized for “reasoning.” The deal is noteworthy since so many generative AI startups have agreed to use cloud services from the likes of Google and Microsoft, but Imbue went a different direction. In a Bloomberg interview, co-founder Josh Albrecht said, “The main reason we went with Dell is that we don’t want to be locked into a computing provider,” adding that using a particular cloud service can hinder the software side of the business if the company eventually decides to break off the partnership.
  • Finally, AI startup Together saw the biggest round so far this week. The San Francisco-based company closed a $102.5 million Series A funding round led by Kleiner Perkins. Together has developed a cloud platform to allow developers to build on open and custom AI models — allowing customers to fine-tune open source foundation models. Nvidia, which rarely lets a week go by without investing in some AI startup, also participated in the round.

Further reading:

Illustration: Dom Guzman

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