AI Firms Seek Big Tech Rescues as Enthusiasm Wanes

Character.AI and Google. Adept AI and Amazon. Microsoft and Inflection.

What do these companies have in common? As The Wall Street Journal (WSJ) reported Tuesday (Aug. 6), they’re all part of a new trend in the artificial intelligence (AI) field: struggling startups being rescued by Big Tech companies in a new type of deal that tech sector observers say are essentially acquisitions.

Other similar deals are on their way, investors tell the WSJ, as the generative AI bubble appears ready to peak, and startups learn they don’t have the cash to develop AI large language models.

“There were a lot of companies that raised on a big vision, but not tangible examples and actual detail,” said Shaun Johnson, a founding partner at the AI-focused venture outfit AIX Ventures.

Meanwhile, Big Tech’s own AI efforts seem to have drawn some skepticism on Wall Street, as Google, Amazon and Microsoft all saw their share prices fall after releasing quarterly earnings last week.

The WSJ report comes days after Character.AI’s co-founders, Noam Shazeer and Daniel De Freitas, announced they were joining Google as part of a larger arrangement that lets the tech giant license the startup’s AI technology.

The deal reportedly involves a buyout of existing investors’ shares at a valuation of $2.5 billion, a sharp increase from its previous valuation of $1 billion, though short of the $5 billion valuation discussed in investor talks last year.

The Amazon/Adept AI deal happened in June, with the tech giant hiring executives and workers from the smaller firm and — sources told the WSJ — paying $300 million to license Adept’s tech.

Sources also say that Adept had raised $400 million, though the cost of developing its technology surpassed what its founders had projected. The WSJ — again, citing sources familiar with the matter — says that the company’s founders had also tried to forge deals with Microsoft and Salesforce.

Microsoft, meanwhile, hired virtually the entire staff of AI developer Inflection in March to bolster its consumer AI division, paying $650 million for its technology.

Last month, the U.K.’s Competition and Markets Authority launched an investigation into this deal to determine whether it qualifies as a merger. Microsoft has said it was cooperating with the investigation and was confident that its arrangement “promotes competition.”