It’s the case of the vanishing startup: some of Silicon Valley’s most promising names in fast-growing generative AI are being swallowed up by or even affiliated with US tech giants.

In recent months, promising companies like Inflection AI and Adept have seen founders and key executives quietly exit the scene due to lack of funds, joining the world’s largest tech companies in discreet transactions.

Critics argue that these deals are just acquisitions and that Microsoft and Amazon have set them up specifically to avoid the attention of antitrust authorities. The companies strongly deny this.

Meanwhile, companies like Character AI are said to be struggling to raise the money needed to remain independent. Some companies, like French startup Mistral, are also said to be particularly vulnerable to a takeover by a tech giant.

Even ChatGPT’s creator, OpenAI, has a relationship with Microsoft, the largest company in the world by market capitalization.

Microsoft is helping secure OpenAI’s future with a $13 billion investment in exchange for exclusive access to the startup’s leading models.

Amazon has its own deal with Anthropic, which makes its own high-end models.

‘Big money’

To participate in the revolution brought about by the groundbreaking release of ChatGPT, a capital injection is required that only tech giants like Microsoft, Amazon or Google can afford.

“Those with the big money make the rules and determine the outcomes that work in their favor,” said Sriram Sundararajan, a tech investor and associate professor at Santa Clara University’s Leavey School of Business.

Contrary to typical Silicon Valley legend, generative AI will not be developed in some founder’s garage.

That type of artificial intelligence, which creates human-like content in seconds, is a special kind of technology that requires massive amounts of computing power from specialized servers.

“Startups are founded by former research executives at large technology companies, and they need resources that only large cloud providers can provide,” said Brendan Burke, AI analyst at Pitchbook, which maps the world of venture capital.

“They don’t follow the traditional entrepreneurial journey of doing more with less, they really want to create the conditions they experienced when they worked in a well-funded research lab.”

Many of these founders, including those of Inflection or Adept, came from Google or OpenAI.

Mustafa Suleyman, the former CEO of Inflection, was a leader at Google DeepMind. He has now left his startup, along with key employees, to lead the consumer AI division at Microsoft.

Inflection still exists on paper, but has been stripped of the assets that gave it value.

“Working with the big tech companies makes a lot of sense,” says Abdullah Snobar, CEO of DMZ, a startup incubator in Toronto. Their deep pockets help “keep the wheels greased and things moving forward.”

‘Suck up all the juice’

But by joining established tech giants you also run the risk of “killing the competition,” potentially creating a situation where “these three big tech companies suck up all the creativity and innovation,” he added.

The burning question in Silicon Valley is whether government regulators will do anything about this.

Big tech companies are increasingly in the spotlight for their penchant for buying smaller companies.

Israeli cybersecurity firm Wiz this week abandoned plans to sell the company to Google in what would have been the giant’s biggest deal ever. The acquisition was reportedly rejected by antitrust authorities.

Before Inflection, antitrust regulators in the United States, the European Union and Britain said they would closely examine its ties to Microsoft. Amazon’s deal with Adept has raised questions at the Federal Trade Commission in Washington.

John Lopatka, a law professor at Penn State University, said “it would be difficult for antitrust regulators to block the deals with Inflection and Adept.”

But that doesn’t mean they won’t try.

US, European and British regulators signed a joint statement on Tuesday stressing that they will not allow big tech companies to trample on the emerging AI industry.

It’s a sign that “regulation is catching up with AI,” Sundararajan warned.

© 2024 AFP