Eye On AI: Microsoft Remains Infatuated With AI Startups, And It’s Not Just Inflection And OpenAI

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

Microsoft recently made waves when it was revealed it would lure two co-founders of generative AI startup Inflection AI away from the company, hire most of its 70-person staff, and license its technology.

The deal — seemingly framed in a way to get around any regulatory hurdles since it is not officially an acquisition — once again showed the tech titan’s insatiable appetite for all things AI.

However, the move was actually just one of several deals the Windows developer and its venture capital arm completed in the past several weeks as it continues investing heavily in the sector.

In late February, Microsoft took part in one of the biggest rounds of the month, investing in AI robotics startup Figure’s huge $675 million round at a pre-money valuation of roughly $2 billion. Other big-name investors in the round included Jeff Bezos’ Explore Investments and Nvidia.

Just a few days later — in a deal that went largely underreported — Microsoft invested about $16 million into Paris-based Mistral AI. The French startup competes with OpenAI — which Microsoft obviously knows well — and Anthropic, and was valued at about $2 billion late last year.

The two AI deals in a month were the most for Microsoft since last May, per Crunchbase data.

Microsoft’s venture arm M12 also joined the AI investing frenzy in recent weeks. In February, the firm took part in rounds for SynthLabs and Guardrails AI — two startups that attempt to ensure companies’ generative AI is reliable, secure doing what it is supposed to do.

Then last month, M12 took part in the big $80 million round for Palo Alto, California-based Foundry, which is developing a public cloud purpose-built for ML workloads.

The last time M12 took part in two rounds for AI startups in one month before February was in November 2022, per Crunchbase data.

Redmond, Washington-based Microsoft’s deal with Inflection AI grabbed most of the clicks the past few weeks and for good reason — it may have provided a blueprint for big tech to get around antitrust regulations.

However, deals like the Mistral and Foundry rounds continue to show Microsoft’s edacious desire for AI.

Things that caught our eye and other stuff:

Of course, Microsoft is far from the only tech company or investing firm looking at AI. Another one that made headlines recently is Thomas Tull’s US Innovative Technology Fund. The firm, perhaps most noted for some of its defense tech deals, led last week’s big $175 million Series C for optical interconnectivity startup Celestial AI. That came just about six weeks after it led Lambda’s $320 million Series C at a $1.5 billion valuation. The company offers cloud computing services and hardware for training artificial intelligence software. That’s big cash from the 2-year-old fund.
Just a few weeks ago, we talked about how U.S.-based, VC-backed semiconductor startups have not seen a windfall of funding despite the need now that AI has exploded. Well, times may have changed. Semiconductor startups have already raised nearly $700 million this year to date, per Crunchbase data. Through all of last year, such startups raised only $1.2 billion. This year’s numbers were greatly helped out by a pair of recent deals — Israel-based AI chipmaker Hailo locked up a $120 million extension of its Series C, and optical interconnectivity startup Celestial AI’s previously mentioned $175 million Series C.
The AI craze has even hit the SPAC market. Artificial intelligence startup Zapata AI finally went public after its combination with former IndyCar driver and owner Michael Andretti’s blank-check firm. The SPAC raised $230 million in its 2022 IPO. However, a large portion of investors redeemed their shares so Zapata did not see all that cash. Per many recent SPAC deals of the past few years, shares of the generative AI and optimization software maker stumbled.