According to news on February 7, in the past year, owning OpenAI stocks has been like grabbing the wealth code of Silicon Valley, becoming a valuable ticket to the next technological revolution for investors. However, as the artificial intelligence startup's valuation has doubled, some investors are choosing not to continue adding to their holdings. In addition, in the face of increasingly fierce competition in the field of artificial intelligence and the exorbitant valuations of some companies, many well-known venture capital companies have maintained a cautious attitude towards investment in artificial intelligence start-ups.
In this wave of caution, the performance of the American venture capital company Founders Fund (FoundersFund) is particularly outstanding. In January 2023, Founders Fund agreed to acquire shares from existing OpenAI shareholders at a valuation of $29 billion. However, when OpenAI sold shares held by employees and investors late last year at a valuation of up to $86 billion, Founders Fund did not choose to increase its holdings. In fact, the company has largely avoided the field of generative AI that is currently getting so much attention.
"Even if you can find another innovative company that is twice as efficient as OpenAI, it will be difficult to shake its market position." John Luttig, an investor at Founders Fund, said. He co-led the investment in OpenAI with partner Trae Stephens. In Luttig's view, OpenAI is like "catching lightning in a bottle." Its leading technical strength and market position make it difficult for other competitors to catch up.
Investment disagreements in the field of artificial intelligence intensify
Amid the wave of generative artificial intelligence, venture capitalists are increasingly divided over investment opportunities. This technology, which can automate coding, writing, graphic design and other tasks, has attracted the close attention of many venture capital companies. Among them, companies such as Andreessen Horowitz have made bold reforms, shifting their focus to the field of artificial intelligence, and actively supporting start-ups that are trying to compete with OpenAI or succeed with its technology.
However, not everyone is optimistic about this artificial intelligence orgy. Some investors are worried that technology giants such as Microsoft, Amazon, and Google will eventually win this competition with their strong financial strength. At the same time, OpenAI’s valuation continues to soar, discouraging many institutions that were originally interested in investing.
Sequoia Capital reportedly backed OpenAI in an employee share sale in 2021, but the company ultimately chose to abandon its $86 billion acquisition offer because some partners believed its valuation was too high. Khosla Ventures also stated that it did not participate in OpenAI’s latest stock acquisition plan because its investment strategy mainly focuses on the early investment stage. Khosla Ventures made its first external venture capital investment when OpenAI launched its for-profit unit in 2019, but such investments are relatively low-risk.
According to people familiar with the matter, OpenAI is discussing a new round of financing with a valuation of up to $100 billion. However, some existing and potential investors say privately that the valuation is too high. Still, many venture capital firms have expressed strong interest in OpenAI, especially after the company's annualized revenue grew from $1.3 billion to $1.6 billion in just a few months.
ThriveCapital has also participated in OpenAI's share sale plan in 2023, and its recent financing has attracted companies such as SoundVentures owned by well-known Silicon Valley investor Ashton Kutcher. Sovereign wealth funds, private equity firms, and other large institutional investors are likely to be important players in OpenAI's future funding plans because they do not face the pressure of huge returns like venture capital firms. Typically, venture capital firms need to obtain huge returns of up to 100 times the capital invested.
Skeptics emerge
Many investors who were not part of OpenAI's latest stock offering are skeptical of the startup's structure. In theory, OpenAI's structure limits the financial returns shareholders can receive and puts control in the hands of a nonprofit whose core mission is to advance artificial intelligence. At the end of November last year, the OpenAI board fired CEO Sam Altman, prompting hundreds of employees to threaten to resign until the board agreed to Altman's return, which undoubtedly exposed the potential flaws of this structure.
This kind of vigilance against OpenAI is not an isolated incident, but a microcosm of the increasing investment differentiation in the field of artificial intelligence. Many well-known venture capital firms, including Founders Fund, as well as smaller investment houses, are shying away from the recent artificial intelligence investment boom. Their concerns focus mainly on high valuations and the lack of advantages these startups may have in competing with software giants. So far, the early results of this cutting-edge technology seem to be more picked up by large enterprises such as Microsoft, because these companies can quickly integrate artificial intelligence technology into existing products.
"We have not made any artificial intelligence investments in the past two years because the entire industry is overvalued." SC Moatti, managing partner of Mighty Capital, a San Francisco startup venture capital firm, admitted frankly. The company has invested in social media company Cameo and homestay giant Airbnb.
However, not all AI investors are choosing to sit on the sidelines. Well-known venture capital firms such as Kleiner Perkins, Lightspeed Venture Partners and Menlo Ventures are still actively betting on the field of artificial intelligence.
They firmly believe that these investments represent a huge bet on the next big technological advancement, with potential comparable to the rise of the Internet or smartphones.
Early-stage venture capital giant Monero Ventures successfully raised $1.35 billion in funding last year and has clearly focused its investment on artificial intelligence startups. Now, the company is leading a $750 million investment in OpenAI competitor Anthropic, which could be valued at $15 billion or more. This strategic move is in sharp contrast to its early investments in startups such as ride-hailing giant Uber, and shows the venture capital community’s high expectations for the field of artificial intelligence.
Spark Capital is not to be outdone and actively participates in the artificial intelligence investment boom. The company has led or co-led hundreds of millions of dollars in investments in Anthropic and Adept. Among them, Adept is working on developing software that can handle multi-step tasks for customers.
At the same time, Kleiner Perkins Caufield & Byers is also making frequent moves in the field of artificial intelligence. The firm has led a number of mid-stage AI deals over the past year. In December, the company led talks with artificial intelligence search startup Lean, which valued the company at $2 billion. In addition, Kleiner Perkins Caufield & Byers also co-led investments in artificial intelligence legal startup Harvey and artificial intelligence coding assistant Codeium, with the former valued at $715 million.
While some investors are wary of backing AI companies, they are still actively looking for investment opportunities. One of them is Founders Fund, which made several small AI seed rounds last year and recently invested in a company developing artificial intelligence agents. This technology is capable of performing complex tasks such as booking a flight or researching business competitors.
Founders Fund investor John Luttig said these investments are attractive because they are at the forefront of technology development and have not yet received widespread attention from the media and customers.