Foundational Issue
Foundational Issue – a cartoon that illustrates the challenge for investor returns from today’s crop of AI companies.
According to Pitchbook, Investors have poured $330 billion into about 26,000 A.I. and machine-learning start-ups over the past three years.
Some of the largest recipients were foundational language model companies (eg. Mistral AI, which in June raised $645 million at a $6 billion valuation).
Others got a steady stream of funding, for example Character AI received a fresh $150 million in funding last year.
Venture firms normally expect to get returns on their investment by their portfolio companies being acquired by large tech companies or going public.
However, some of the big tech companies have gone out of their way to poach talent from these heavily invested startups rather than bothering to acquire the company outright.
For example, Google last week announced the cofounders of Character AI and some members of its research team would join its company.
This is like Microsoft’s announcement when it gutted a big part of the workforce at AI startup Inflection, including CEO Mustafa Suleyman, and what Amazon did in June with AI company Adept.
For venture firms, this leaves them with a stranded asset of little value or are paid back the same amount as they invested into the startup, delivering zero return and making a train wreck of their business model.
