February 8, 2023

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New territory of AI breakthroughs, even in the midst of technological darkness

Five weeks ago, OpenAI, an artificial intelligence lab in San Francisco, launched ChatGPT, A chatbot that answers questions in clear and concise prose. The AI-powered tool instantly became a sensation, with more than a million people using it to create everything from poetry to high school term papers to rewrites of Queen songs.

Now OpenAI is in the midst of a new gold rush.

Two people familiar with the discussions said the lab is in talks to complete a deal that would be worth about $29 billion, more than double its valuation in 2021. They said the potential deal — where OpenAI would sell the company’s existing shares in a so-called tender offer — could total to $300 million, depending on how many employees agree to sell their shares. The company is also in discussions with Microsoft – which I invested $1 billion in it in 2019 – For extra money, two people said.

The hype around OpenAI shows that even in the bleakest tech downturn in a generation, Silicon Valley’s deal-making machine is still on edge. After a modest year that included Mass layoffs and cutbackstech investors — an inherently optimistic group — can’t wait to jump in on a hot trend.

No area has created more excitement than generative AI, a term that refers to technology that can create text, images, sounds, and other media in response to short prompts. Investors, pundits, and journalists have talked about AI for years, but the new wave — the result of more than a decade of research — represents a more robust and more mature breed of AI.

This kind of artificial intelligence promises to reinvent everything from Internet search engines such as Google to Image and graphics editing software such as Photoshop to Digital assistants such as Alexa and Siri. Ultimately, it could provide a new way to interact with almost any program, allowing people to chat with computers and other devices as if they were talking to another person.

This has led to an increase in deal-making around generative AI companies. Jasper, an artificial intelligence startup founded in 2021, raised $125 million in October, with a valuation of $1.5 billion. AI stability, an image generation company founded in 2020, raised $101 million in the same month, with a value of $1 billion. Smaller generative AI companies, including Character.AI, Replika and You.com, have also been showered with investor interest.

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In 2022, investors poured at least $1.37 billion into generative AI companies across 78 deals, as much as they invested in the previous five years combined, according to data from PitchBook, which tracks financial activity across the industry.

OpenAI’s valuation was $29 billion I mentioned earlier By The Wall Street Journal. Two people said that venture capital firms Thrive Capital and Founders Fund may buy shares in the tender offer. Since OpenAI started as a not-for-profit company, determining its exact valuation is difficult.

OpenAI, Thrive Capital, and Founders Fund did not provide any comments on the proposed investment.

Companies have been developing generative AI for years, including tech giants like Google and Meta as well as ambitious startups like OpenAI. But the technology didn’t catch the public eye until last spring. When OpenAI unveiled a system called DALL-E It allows people to create realistic images by simply describing what they want to see.

This has inspired entrepreneurs to indulge in new ideas and investors to make sweeping announcements of disruption. Their excitement reached new heights in December after OpenAI released ChatGPT, where fans harnessed the technology to create love letters and action plans.

“It’s a new kind of ‘mobile’ paradigm shift we’ve all been waiting for,” said Nico Bonatsos, an investor at venture capital firm General Catalyst. “Maybe even bigger.”

Investors in Sequoia Capital books Generative AI has the “potential to generate trillions of dollars in economic value”. “There is definitely an element of this that feels like an early internet launch,” said Lonne Jaffe, an investor with Insight Partners.

Google, Meta, and other tech giants have been reluctant to release productivity technologies to the broader public because these systems often produce toxic content, including misinformationand hate speech and images that are biased against women and people of color. But newer, smaller companies like OpenAI—less concerned with protecting an established brand—have been more willing to take the technology out to the public.

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The techniques needed to build generative AI are widely known and freely available through academic research papers and open source software. Google and OpenAI both have an advantage because they have access to the deep pockets and raw computing power, which are the building blocks of the technology.

However, several top researchers from Google, OpenAI, and other leading AI labs have gone out on their own in recent months to found new startups in the field. These startups have received some of the largest funding rounds, as excitement surrounding ChatGPT and DALL-E has prompted venture capital firms to invest in more startups.

More than 450 startups are now working on generative AI, through The number of venture capital firms. The frenzy was compounded by investors’ eagerness to find the next big thing in a bleak environment.

Michael Dempsey, an investor at investment firm Compound, said the tech downturn — which last year included a cryptocurrency crash, stock underperformance, and layoffs at several companies — has created a lull among investors.

Then he said, “Everyone got excited about AI.” “People need something to tell their investors or themselves, frankly, that there’s something else to be excited about.”

Some worry that the hype around generative AI has outpaced reality. The technology has raised thorny ethical questions about how generative AI affects copyright and whether companies need to get permission to use the data that trains their algorithms. Others believe that big tech companies like Google will quickly defeat emerging startups, and that some of the new companies have little competitive advantage.

“There are a lot of teams that don’t have any AI competency that present themselves as AI companies,” Dempsey said.

Those concerns haven’t slowed down the swell of excitement, especially after the arrival of Stability AI in October.

The startup helped fund an open source software project that quickly built image generation technology that works like DALL-E. The difference was that while OpenAI only shared DALL-E with a small number of testers, anyone could use the open source version of Stability AI – Stable Diffusion -. Soon people were using the tool to create photorealistic images of everything from a medieval knight crying in the rain to Van Gogh’s Disneyland.

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In the ensuing excitement, Eugenia Koeda, founder and CEO Start Replika chat bot, in an interview that she has been approached by “every venture capital firm in Silicon Valley”, or more than 30. She accepted their calls but decided not to take additional funding because her company, which was founded in 2014, is profitable.

“I feel like a person who arrived at the airport a week ago for a flight – and now the plane is about to board,” she said.

Character.AI, another chatbot company, and You.com, which is adding chat technology to its Internet search engine, have also been showered with venture capital interest, the companies said.

Sherif Shamim, the entrepreneur who built a searchable image database called Lexica created by Stable Diffusion in August, said his tool quickly reached one million users — a signal he should shift from his current company to focus on Lexica. Within a few weeks, he raised $5 million to fund the project.

Mr. Shamim compared the moment about generative AI to the advent of iPhone and mobile apps. “It feels like one of those rare opportunities,” he said.

Mr. Jaffe of Insight Partners said his company has since encouraged most of its portfolio companies to consider integrating generative AI technology into their offering. “It’s hard to think of a company that can’t use it in some way,” he said.

Radical Ventures, a Toronto venture firm, One of the global centers for artificial intelligence research, was created five years ago specifically to invest in this type of technology. It recently launched a new $550 million fund dedicated to AI, with more than half of its investments in generative AI companies. Now these bets look even better.

“For four and a half years, people thought we were crazy,” said Jordan Jacobs, partner at Radical. “Now, for the past six months, they’ve thought we were geniuses.”