Why Google, Microsoft, and Amazon are hesitant to buy A.I. Start-Ups
Noam Shazeer, Daniel De Freitas and their colleagues at Google who were working on artificial intelligence in 2022 left their jobs. They claimed that the tech giant was moving too slowly. They created Character.AI, an AI chatbot company, and raised almost $200 million. They had signed a deal with Google to join its A.I. research arm, along with roughly 20 percent of Character.AI’s employees, and provide their start-up’s technology, they said.
But even though Google was getting all that, it was not buying Character.AI.
Instead, Google agreed to pay $3 billion to license the technology, two people with knowledge of the deal said. Around $2.5 billion will be used to buyout Character.AI’s investors, including Mr. Shazeer who owns between 30 and 40 percent of the firm. He stands to make $750 million to $1.0 billion, according to the people. What remains of Character.AI will continue operating without its founders and investors.
The deal was one of several unusual transactions that have recently emerged in Silicon Valley. The deal was one of several unusual transactions that have recently emerged in Silicon Valley. companies. Three people who have been involved with such agreements said that these transactions are driven by the desire of big tech companies to avoid regulatory scrutiny and get ahead in A.I. These transactions are driven by the desire of big tech companies to sidestep the regulatory scrutiny while trying in order to get ahead. Google, Amazon, Meta, Apple and Microsoft are under a magnifying glass from agencies like the Federal Trade Commission over whether they are squashing competition, including by buying start-ups.
“Large tech firms may clearly be trying to avoid regulatory scrutiny by not directly acquiring the targeted firms,” said Justin Johnson, a business economist who focuses on antitrust at Cornell University. But “these deals do indeed start to look a lot like regular acquisitions.”
In a statement, Google said it was “thrilled” that Mr. Shazeer was returning alongside some of his colleagues and declined to comment on antitrust scrutiny. A federal judge issued a landmark decision on Monday that found Google violated antitrust laws by abusing its monopoly in the online search market.
A character.AI spokeswoman refused to comment beyond the announcement about the Google deal. The Information earlier reported on the deal’s details.
Since the A.I. Since the A.I. Investors rushed to invest in A.I. Investors initially raced to pour money into A.I. This led to a frenzied pace as start-ups like Anthropic raised large sums of money frequently, and agreed to various funding terms, such as using cloud computing services and chips from the companies who invested in them. start-ups would not succeed, creating an opportunity for big tech companies to swoop in with nontraditional deals.
Microsoft kicked off the trend in March when it agreed to pay the A.I. Inflection, a start-up, received more than $650m to license its technology, and hire nearly all of its employees including its founder Mustafa Suleyman. Mr. Suleyman is an A.I. Microsoft’s consumer A.I. In June, Amazon signed a similar agreement with the A.I. Adept, the A.I. start-up, was able to hire many of its employees including its founder David Luan. Amazon also offered Adept employees a $100 million retention incentive, according to the people.
Regulators will be watching. The F.T.C. The F.T.C. The agency announced in January that it was investigating whether Microsoft should have notified regulators about the Inflection deal, which would have subjected the arrangement to more immediate scrutiny. It is also investigating whether Microsoft should have notified regulators about the Inflection deal, which would have subjected the arrangement to more immediate scrutiny, a person with knowledge of the matter said.
On Thursday, Britain’s antitrust regulator said it was investigating an investment deal that Amazon had made with Anthropic.
Silicon Valley has embraced the unusual deals because start-up founders can continue working on their technology with the resources of a large company, without worrying about making money on their own.
The transactions can also provide a fast return for investors. Investors in Character.AI (which was privately valued at $ 1 billion) made a return of two-and-a half times their investment from the Google licensing agreement after only two years. People familiar with the deals said that most investors received their money back. Those employees do not get to partake in the financial spoils of these deals.
That has caused consternation among some tech investors and entrepreneurs.
“If you build a company and you take on money from investors, every person involved deserves to be rewarded,” said Sebastian Thrun, an A.I. Sebastian Thrun is a serial entrepreneur and researcher who founded Google’s self driving car project. If you water things down, it will be hard for the ecosystem to survive. If you water things down, it will be hard for the ecosystem to survive.”
Matt Turck, an investor at the venture firm FirstMark Capital, said he hoped these types of deals would not continue because they created “a messy structure that breaks down the alignment” of founders, employees and investors.
It is unclear how the left-behind companies will fare. Dominic Perella, general counsel at Character.AI, has been appointed interim chief executive. The company has stated that it is “committed” to serving its users with innovative new products. A person familiar with the agreement said that teams working on product, sales and other areas did not join Amazon. technology. The start-up’s former head of engineering, Zach Brock, has since taken over as chief executive, and the company is trying to license its technology to other firms, according to a recent pitch sent to prospective partners that was viewed by The New York Times.
Inflection has also hired a new chief executive, but just two employees stayed on while the rest — roughly 70 people — joined Microsoft. Inflection used Microsoft’s $650 million licensing fee to reimburse its investors who had invested $1.5 billion in the company. Many A.I. Many A.I. At the same time, some of the start-ups are struggling to make money and to compete with the bigger players, so they may be more willing to entertain deal talks.
“Founders and investors realize that not every high-profile A.I. Turck stated that a start-up with great founding team is likely to be the next OpenAI, or Google.
