GOLD RUSH GOSH : MASTER VC ESSAY

 

A gold rush in funding inundates A.I. start-ups. Top venture capital firms are jockeying to be part of tech's next big thing.

When four leading artificial intelligence researchers left Google this year to create a start-up called Mobius AI, they weren't sure what their product might be - just that they would involve A.I. technology that could generate its own photos and videos.

Within about a week, two of Silicon Valley's Top venture capital firms, Andreessen Horowitz and Index Ventures, had swooped in with a funding offer, three people with knowledge of the matter said.

Suddenly, Mobius - little more than four guys and a laptop - was valued around $100 million, an unusually high number for a start-up that was just a week or so old, the people said. When word of the deal leaked  out, other investors descended to urge Mobius to take their money, too, they said.

OVER the past few months, a gold rush into start-ups working on ''generative'' artificial intelligence has grown into no-holds barred deal-making mania.

The interest has mounted so spaidly that A.I. start-ups valuations are soaring beyond that of 2021's  ''everything bubble'' : Investors are trawling the roster of companies like Google, Meta and OpenAI for A.I. experts who may have an itch to start their own companies.

The funding race has heated up ever since ChatGPT, the chatbot made by OpenAI, went viral last year by showing the power of A.I. to generate its own tweets, emails, articles, answers and ideas.

Even with investors expecting last week's failure of Silicon Valley Bank, an institution that many tech start-ups relied on, to cast a pall over start-up funding, there is still a mismatch between the number of opportunities in artificial intelligence and the money available to fund them.

That's because of the scarcity of A.I. companies and the potential of technology. With few experts in the field, and most of them working at a handful of big tech companies, only a few generative A.I. start-ups  - such as Stability AI and Jasper - have broken out.

Investors desperate for the next big thing are competing fiercely to invest in these companies, offering some A.I. entrepreneurs nine-figure valuations for little more than an idea and a resume.

''We're in that phase of the market where it's, like  let 1,000 flowers bloom,'' said Matt Turck, an investor who specializes in A.I. at the venture firm First Mark. He added that the deal-making stood out in otherwise dreary moment for tech marked by layoffs, cost cutting and a drought in initial public offerings.

The blooming flowers include Dust, a start-up founded by former employees of OpenAI. Dust is nearing a $5 million funding round led by Sequoia Capital that will value it at $30 million to $40 million, two people with knowledge of the situation said.

The round was competitive, with term sheets offering valuations as high as twice that, one of the people said.

Perplexity AI, a start-up created by former employees of OpenAI, Google and Meta, is raising $20 million to $25 million, led by NEA, that values the company at about $150 million, two people familiar with the situation said.

And LangChain, a start-up working on software that helps other companies incorporate A.I. into their products, has raised funding from Benchmark, a person with the knowledge of the matter said.

Those follow the $13 billion that OpenAI raised from Microsoft, including $10 billion in January, and $300 million raised this year by Anthropic, another A.I. start-up.

At Y Combinator, the start-up incubator, at least 50 of the 218 companies in the current program are working in the generative A.I., according to a tally taken by Truewind, an A.I. bookkeeping start-up that is part of the program.

Alex Lee, Truewind's chief executive, said ChatGPT has helped potential investors, customers and employees understand the possibilities of the technology.

''Before you go in and say, 'We're doing something with A.I.,' and it's hard to picture exactly what that looks like,'' Mr. Lee said. '' Now, they say, 'Oh, I've played with ChatGPT, and I can imagine how I could use this in my world.' ''

The Publishing continues. The World Students Society thanks authors Erin Griffith and Cade Metz.