Conflicted Interests
“Conflicted Interests” – a cartoon that illustrates how many AI investors are pursuing different and parallel agendas to the startups they invested in.
According to Pitchbook, investors have pumped $27BN into 498 generative AI deals, which is up more than 200% from 2022.
Meanwhile Forge Global reported that the average round for AI companies is 140% bigger this year compared with last.
Meanwhile, Microsoft’s $10BN investment in OpenAI is at the same time it paid $650 million to Inflection.AI license its AI software.
This has apparently got so bad that OpenAI at its last investment round got soft commitments from their Thrive Capital and Tiger Global to refrain from funding five competing companies, which included Anthropic, xAI and OpenAI’s co-founder Ilya Sutskever‘s new company.
The issue with all this cross-investing is that investors are party to sensitive information about the companies they invest in and backing rival companies brings into question commitment. Also, this goes against the grain of technology investors who constantly espouse that they are founder-friendly.
For example, Bryan Schreier, a partner at Sequoia, mentions on his firm’s page that “my goal is to be a founder’s first call. That’s not something you can add to a term sheet. It has to be earned—through trust, delivery and being there when things are messy and hard.”
This trust is a lot harder to achieve if the founder knows you are also picking up his or her rival’s phone calls, too.
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Sources:
Hayden Field and MacKenzie Sigalos (Sep 6, 2024) – AI craze is distorting VC market, as tech giants like Microsoft and Amazon pour in billions of dollars – CNBC
Ben Bergman and Riddhi Kanetkar (Oct 26, 2024) – VCs are ‘hedging their bets,’ backing competing LLMs like Anthropic and OpenAI, breaking a long-standing venture taboo – Business Insider
