The landscape for startup funding has been rough for many for quite some time… unless you’re a company working in the generative AI space! No longer are would-be investors waiting for proof that a company is moving in the right direction. Instead, they are knocking on the door hoping to have the opportunity to jump on board. Several companies are enjoying this new AI startup buzz with, OpenAI being naturally one of them. Having been the first to introduce generative AI to the world with ChatGPT, they quickly saw a rise of AI funding. But they are not alone. Anthropic, another rising star in the AI world, is also attractive massive amounts of funding support. Each year, their number of investors increase along with investor status with names like Google, Amazon and others in the mix. And these funding deals aren’t your typical ones, often being highly complex. Understanding this, it’s worth examining companies like Anthropic in greater detail in order to appreciate the AI startup buzz. Its rise in AI funding along with its rise in notoriety portray Silicon Valley as it is today.
(The latest Beatles song was created with the help of AI–read all about the magic in this Bold story.)
The History of Anthropic
Many may not have yet heard of Anthropic as an AI startup company. But that’s not necessarily true in Silicon Valley or in the VC world. Anthropic was founded in 2021 by Dario Amodei, who has quite the impressive background. Amodei was one of the key players working for OpenAI who developed ChatGPT, and he left OpenAI to launch his own company amidst the AI startup buzz. Though early months for funding were nothing to brag about, its recent rise of AI funding has been nothing short of amazing. In fact, in the last year alone, Anthropic has raised roughly $7.3 billion through multiple VC deals.
While OpenAI has its own ChatGPT, Anthropic boasts its own AI chatbot as well. Named Claude, this chatbot has helped fuel Anthropic’s recognition. The company was initially portrayed as a startup that would advance AI with guardrails. Concerns about the threat of AI on humanity has been persistent for Amodei. He even stated there is a 10-25% chance AI could destroy humanity. It is this philosophy that attracted early investors who shared existential fears with AI. In 2021, the company raised $124 million followed by $580 million the following year. This notable, but it is much less than its recent rise of AI funding. Being now valuated at $15 billion, Anthropic is now among the top of the AI startup buzz leaders.
Complex and Unique Funding Deals
It should be recognized that the way new AI company funding is occurring is a bit unconventional. Unlike traditional VC funding, many of these deals are much more complex and integrated. For example, major investors in Anthropic include Google, Amazon, and Asian telecommunications companies. These have accounted for the lion’s share of the $7.3 billion raised this year. But alongside these deals and rise of AI funding are additional promises for use of services. For instance, Anthropic has committed to using Google’s cloud services and computing for its AI training services. The company also has agreed to use specialized chips made by Amazon and to use its cloud platform for its chatbot. In essence, these types of arrangements ensure an investor that something will at least be gained in the short term. This is even true of Anthropic doesn’t live up to the AI startup buzz surrounding it.
(It’s been a rough scrap to get VC funding–read all about it in this Bold story.)
This is not the only unique thing about Anthropic’s funding deals as of late. Given that AI companies require a tremendous amount of capital, they tend to seek high-dollar investments. Such funds are needed to support talent acquisition, access to computing services, and securing needed chips. As such, small-dollar investments in the low millions are often not worth the time. Interestingly, however, Anthropic allowed Menlo Ventures to create a special purpose vehicle to consolidate such smaller investors. Rather than dealing with several lower-funding players, Menlo Ventures provided the solution to fuel an aggregate VC investment worth consideration. This too supported a further rise in AI funding amidst the AI startup buzz.
Fear of Missing Out (FOMO)
One of the biggest drivers in this rise of AI funding is a concern that one might miss out on the next big thing. This has accounted for not only rapid-fire funding rounds this year for companies like OpenAI and Anthropic. But it has also led to sizable amounts. For OpenAI, its major investor has been Microsoft thus far. In total, Microsoft has invested over $13 billion in the company as the AI startup buzz grows. And like Anthropic, OpenAI has also made a separate deal with Microsoft to use its Azure cloud services. At the present time, Open AI is believed to be valued around $80 billion. If nothing else, it’s clear the hype is real though monetizing these AI entities is not yet well defined.
(The biggest problem with AI companies? Monetizing their product! Read this Bold story for more.)
There are some concerns that these new deals surrounding the AI startup buzz could reflect anti-trust situations. The Federal Trade Commission is currently exploring the rise in AI funding and these new convoluted VC deals. According to Google, Amazon, and Anthropic, agreements to use cloud services and chips are separate from funding supports. But whether or not an assumed quid pro quo exists is something the FTC is examining. In any case, it’s evident that in order to get in the AI startup game, one has to have deep pockets. This is why many believe the tech giants of today will also be the tech giants of tomorrow. The key is investing in the right AI startup today that will be part of the AI future to come. Many seem to believe Anthropic is among that list.