Eye On AI: Microsoft’s G42 Deal Could Bring More AI Money, Tech To UAE

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

The big news in AI this week was undoubtedly Microsoft’s huge $1.5 billion strategic investment in United Arab Emirates-based artificial intelligence firm G42 — the biggest private round to go to an AI startup this year.

Of course, Microsoft betting big on AI firms is nothing new. Just a couple weeks ago, we covered the Redmond, Washington-based tech titan’s recent deals involving chatbot startup Inflection AI, AI robotics firm Figure, Paris-based generative AI company Mistral AI, and many others just this year. That is to say nothing of Microsoft’s well-publicized relationship with OpenAI.

However, the G42 deal is another big mile-marker for Microsoft that illustrates what it is willing to do — and invest — to win the AI race.

The G42 investment seems to have presented several unique issues.

First, there is mounting U.S. concern about some Middle Eastern countries — including UAE — strengthening their ties to China, which obviously make such a deal more difficult given the current environment.

Secondly, G42 has Chinese ties — something it reportedly has divested itself from — which has raised significant concern in the U.S.

The companies were able to work past that and offered promises to both the U.S. and UAE about their development of AI.

However, along with the $1.5 billion investment, the deal also will support a new $1 billion developer fund that is intended to create an AI workforce and talent pool to drive innovation in the region.

While there has been no shortage of stories involving money from sovereign wealth funds in the UAE looking to invest in U.S. startups, not much has been said about U.S. firms, funds or companies looking to invest in UAE-based startups.

In fact, per Crunchbase data, only 18 U.S.-based firms have taken part in any deals this year involving a UAE-based company and none have taken part in more than one deal.

Those 18 firms have participated in only nine total unique rounds in the UAE, the largest being a $23 million Series A for social discovery app Hunch last month led by U.S. firms Alpha Wave Ventures and Hashed.

Last year the numbers were only slightly higher with about 60 U.S. firms doing business with startups in the region. Techstars actually led the way with six deals.

Of course, there are likely several reasons for the lack of participation by U.S. firms and funds in the UAE’s burgeoning tech startup ecosystem, but there is little question some of it likely is due to political concerns that apparently are no obstacle for Microsoft.

However, Microsoft’s deal for a minority stake in G42 could help increase those investment numbers. Microsoft is obviously planting seeds for other tech investments in the booming region — likely centering on AI — by announcing the developer fund.

The projects that will receive that funding — along with Microsoft’s vast amount of computing resources — no doubt are likely to birth more startup ventures that could attract VC or corporate money. That is especially true since those projects will most assuredly be AI related.

It also could be a case where Microsoft has shown the way that investment in the region is possible, even if those deals take some brokering.

When one considers the new partnership with G42 also includes the company using Microsoft’s cloud services to run its AI applications, it definitely seems like a win for the Windows maker. It may also be a big win for the region.

Things that caught our eye and other stuff:

Starting a generative AI startup does not guarantee smooth sailing. This week it was reported (and later confirmed by the company) that Tome, a developer of a generative AI presentation tool launched a couple of years ago, is laying off staff. Tome said the cut is 20% of its nearly 60 people. The company has raised more than $75 million across a few rounds. Its latest Series B was led by Lightspeed Venture Partners. We’ve not heard a lot about AI startups laying off staff, but more could come especially if funding slows.
New York-based HumanX raised more than $6 million in funding this week led by Primary Venture Partners. The round is interesting because the startup isn’t a generative AI company, per se, but is rather striving to be an AI strategist and thought leader through conferences that bring top AI leaders together. The company was founded by the team behind the Money20/20 conference. The startup’s inaugural gathering will be hosted in March 2025. HumanX also will offer advisory services and AI regulation and policy advocacy.