Five weeks ago, OpenAI, an artificial intelligence lab in San Francisco, released ChatGPT, a chatbot that answers questions in clear, concise prose. The AI-powered tool quickly became a sensation, with over a million people using it to create everything from poems to high school term papers to rewrites of Queen songs.
OpenAI is currently in the midst of a new gold rush.
The lab is in talks to complete a deal valued at about $29 billion, more than double its 2021 valuation, two people familiar with the discussions said. A potential deal, in which OpenAI sells shares in an existing company in a so-called tender offer, could total $300 million, depending on how many employees agree to sell their shares, they said. The company is also in talks with Microsoft, which invested $1 billion in 2019, for additional funding, two people said.
The hype around OpenAI shows that Silicon Valley’s deal-making machine is still in motion, even in the most dire technology recession of a generation. After his humble year that included mass layoffs and job cuts, tech investors (a naturally optimistic bunch) can’t wait to jump on the hot trend.
No field has generated more excitement than generative artificial intelligence, a term for technologies that can generate text, images, sounds, and other media in response to short prompts. Investors, experts, and journalists have been discussing artificial intelligence for years, but a new wave — the result of more than a decade of research — represents a more powerful and mature kind of AI.
This kind of AI promises to reinvent everything from online search engines like Google, to photo and graphics editors like Photoshop, to digital assistants like Alexa and Siri. Ultimately, it could offer new ways to interact with almost any software, allowing people to chat with their computer or other device as if they were chatting with another person.
This has led to a fever in the deals surrounding generative AI companies. Jasper, a generative AI startup founded in 2021, raised his $125 million in October at a valuation of his $1.5 billion. Stability AI, an image generation company founded in 2020, raised $101 million in the same month and was valued at $1 billion. Smaller generative AI companies such as Character.AI, Replika and You.com have also been flooded with investor interest.
In 2022, investors put at least $1.37 billion into generative AI companies in 78 deals, according to data from PitchBook, which tracks financial activity across the industry.
OpenAI’s $29 billion valuation was previously reported by The Wall Street Journal. Venture capital firms Thrive Capital and Founders Fund may buy shares in a tender offer, two people said. Since OpenAI started as a non-profit company, it’s difficult to pinpoint an exact valuation.
OpenAI, Thrive Capital and Founders Fund declined to comment on the proposed investment.
Companies have been developing generative AI for years, including tech giants like Google and Meta and ambitious start-ups like OpenAI. But the technology didn’t get the public’s attention until last spring, when OpenAI unveiled his system called DALL-E. DALL-E allows you to generate photorealistic images simply by describing what you want to see.
This has led entrepreneurs to dive into new ideas and investors and outright declare their turmoil. Their enthusiasm reached new heights after OpenAI released his ChatGPT in December, with fans using the technology to write love letters and business plans.
The rise of OpenAI
The San Francisco company is one of the world’s most ambitious artificial intelligence labs. Let’s take a look at some of the recent developments here.
Niko Bonatsos, an investor at venture capital firm General Catalyst, said: “Maybe even bigger.”
Sequoia Capital investor writes that generative AI “could create trillions of dollars of economic value.” “There’s definitely an element to this that feels like the early launch of the internet,” said her Insight Partners investor Lonne Jaffe.
Google, Meta, and other tech giants are reluctant to bring generative technology to the wider public. Because these systems often generate toxic content such as misinformation, hate speech, and images that are prejudiced against women and people of color. But newer, smaller companies like OpenAI are less concerned with protecting established corporate brands and more willing to expose their technology.
The technologies required to build generative AI are widely known and freely available through academic research papers and open source software. Google and OpenAI have the advantage of having access to abundant funding and raw computing power, the building blocks of their technology.
Still, many top researchers at Google, OpenAI, and other leading AI labs have gone on their own in recent months to find new startups in the space. These startups have received some of the biggest funding rounds, with the excitement surrounding ChatGPT and DALL-E prompting venture capital firms to invest in more and more young companies.
More than 450 startups are currently working on generative AI, according to a tally by a venture capital firm. And the frenzy is compounded by investor enthusiasm to find the next big thing in a bleak environment.
Michael Dempsey, an investor at venture firm Compound, says last year’s crash in cryptocurrencies, sluggish stock prices and a technology downturn that included layoffs at many companies caused a lull among investors. rice field.
Afterwards, “Everyone got excited about AI,” he said. “People need something that honestly tells investors and themselves that they have something to be excited about next.”
Some worry that the hype around generative AI is ahead of reality. The technology raises thorny ethical questions about how generative AI affects copyright and whether companies need to get permission to use the data to train algorithms. Others believe that big tech companies such as Google are quickly beating out young startups, some of which have little competitive advantage.
“There are a lot of teams that don’t have AI capabilities and are marketing themselves as AI companies,” Dempsey said.
Those concerns haven’t slowed the excitement, especially after the arrival of Stability AI in October.
The start-up helped fund an open source software project to rapidly build image generation technology that behaves like DALL-E. The difference was that OpenAI only shared his DALL-E with a handful of testers, while the open source version of Stability AI, Stable Diffusion, was available to everyone. People soon used the tool to create photorealistic images of everything from medieval knights crying in the rain to Disneyland painted by Van Gogh.
In the ensuing excitement, Eugenia Kuyda, founder and CEO of chatbot startup Replika, said in an interview that she had been contacted by “every Silicon Valley VC firm,” or more than 30. said. She answered their call, but decided against raising additional funding because her company, founded in 2014, is profitable.
“I feel like someone who arrived at the airport a week early to catch their flight, and now they’re boarding the plane,” she said.
Character.AI, another chatbot company, and You.com, which is adding chat technology to Internet search engines, have also been flooded with interest from venture capitalists, the companies said.
Entrepreneur Sharif Shameem, who built a searchable database of images called Lexica that Stable Diffusion created in August, said his tool quickly reached a million users. Within weeks, he had raised his $5 million in funding for the project.
Shameem likened the age of generative AI to the emergence of the iPhone and mobile apps. “I feel he’s one of those rare opportunities,” he said.
Insight Partners’ Jaffe said his company has since encouraged most of its portfolio companies to consider incorporating generative AI technology into their products. “It’s hard to think of a company that couldn’t use it in some way,” he said.
Radical Ventures is a venture company in Toronto, one of the world’s centers of AI research, founded five years ago specifically to invest in this kind of technology. The company recently launched his new $550 million AI-focused fund, with more than half of its investments in generative AI companies. Now those bets look even better.
Radical partner Jordan Jacobs said: “Now, for the past six months, they thought we were geniuses.”
