$330 billion is not enough! A number of AI unicorn wallets are in a hurry, laying off employees, and CEOs are leaving

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Edit | Li Shuiqing

Zhidong reported on April 30 that, according to foreign media reports on April 29, well-known AI startups such as Inflection AI, Stability AI and Anthropic are all facing financial crises.

Inflection AI raised $1.5 billion in June last year but recently ceased operations due to little profitability and was merged with Microsoft at the end of March, Stability AI announced layoffs in March and replaced its CEO in the same month due to investor pressure, and Anthropic created a gap of about $1.8 billion last year and is making up for losses this year by increasing corporate partnerships.

According to PitchBook, AI startups received about $330 billion in investment from 2021 to 2023, a year-on-year increase of two-thirds. But many AI startups still don't have enough money to spend, and even OpenAI, which has raised the most money, is facing sales challenges. Tech giants such as Meta can spend tens of billions of dollars on their own AI, but AI startups can't afford to burn money like this.

Well-known AI startups have laid off employees, replaced executives, adjusted their organizational structures, and sought mergers of large manufacturers.

First, the cost of AI technology exceeds expectations, and the financial pressure of startups is highlighted

Recently, some startups in the field of AI are facing financial pressure, and foreign media reporter Aaron Fernandez believes that this may mark the end of the AI boom period. Several companies, including Inflection AI, Stability AI, and Anthropic, have experienced financial challenges since mid-March.

Observers in Silicon Valley are increasingly recognizing that the AI revolution comes with high costs. Tech companies are looking for ways to bridge the gap between their expenses and their profits. Some startups have raised tens of billions of dollars to develop generative AI technology, but even with such huge amounts of funding, these startups still face significant challenges in the market to compete with big tech companies such as Google, Microsoft, and Meta.

Ali Ghodsi, CEO of Databricks, argues that even in times of tech boom, a lot of money is wasted, but the AI system itself is more expensive to build than expected. Generative AI models cost billions of dollars, require high-end chips that are expensive and in limited supply, and queries using AI systems often cost more than using traditional search engines such as Google Search.

Second, the $330 billion financing is not enough for start-ups, and OpenAI is also facing sales challenges

According to private market data firm PitchBook, investors invested $330 billion in about 26,000 AI and machine learning startups in 2021 and 2023, a two-thirds increase from the total investment between 2018 and 2020.

OpenAI performed well in its early business, thanks to Microsoft's $13 billion backing. Thanks to the popularity of its ChatGPT system, the company has successfully established a business model. OpenAI offers an advanced chatbot service for $20 per month and allows businesses to build their own AI services with its large language models. OpenAI's revenue last year was about $1.6 billion, but its spending has not been made public, according to people familiar with the matter. OpenAI did not respond to a request for comment.

Even at OpenAI's scale, AI startups face challenges in expanding sales. Companies are always cautious about AI because they may produce inaccurate answers when using AI systems to ask questions. In addition, the technology has been questioned for infringement of data copyrights. Foreign media sued OpenAI and Microsoft in December last year to resolve copyright issues related to news content generated by AI systems.

Still, some investors see Microsoft's rapid growth in sales as a signal of the potential of the AI business. According to Brad Reback, an analyst at Stifel Investment Bank, Microsoft sold about $1 billion in AI services for cloud computing in its most recent quarter, up from almost zero a year ago.

Meta has increased its infrastructure spending by about $10 billion this year, and its chief executive, Mark Zuckerberg, said the company is investing to stay ahead of the technology and that the company will not be profitable with its AI products for years to come.

3. Layoffs, CEO resignations, and mergers into large factories, AI startups are struggling to survive

Anthropic was backed by Amazon and Google last year, raising more than $7 billion in funding. Foreign media said that Anthropic's annual expenditure is about 2 billion US dollars, while its revenue is only 150 million to 200 million US dollars.

Anthropic has recently begun to expand its business by partnering with big tech companies. Its CEO, Dario Amodei, announced in early April a partnership with global consulting firm Ernst & Young to create customized chatbots and AI systems for businesses and government agencies. Sally Aldous, a spokeswoman for Anthropic, said the company's technology was already used by thousands of businesses and that millions of consumers were using its publicly available chatbot, Claude.

Emad Mostaque, the CEO of Stability AI, a company focused on image generation, announced his resignation in March. In 2022, Stability AI raised $101 million from venture capitalists, but when it sought more funding last fall, the company struggled to prove to investors that its technology could be successfully sold to businesses. Despite receiving $50 million in funding from Intel at the end of last year, the company is still under financial pressure.

As the company grew, its sales strategy changed, and the monthly spending on computing costs reached millions of dollars. Some investors had pressured Mr. Mostaq to resign. After Mostac's resignation, Stability AI made layoffs and restructured the business.

Inflection AI, a chatbot startup founded by three AI experts, raised $1.5 billion from tech giants last year. However, a year after the launch of the AI assistant, the company has little to no revenue. Foreign media reviewed a letter sent by Inflection AI to investors, which pointed out that additional financing is not the best way to use investors' funds. Eventually, Inflection AI shut down its original business and was merged into Microsoft's business at the end of March.

Inflection AI的首席执行官穆斯塔法·苏莱曼（Mustafa Suleyman）是DeepMind的创始人之一。 苏莱曼与DeepMind的研究员卡伦·西蒙扬（Karén Simonyan）和硅谷风投家里德·霍夫曼（Reid Hoffman）共同创立了Inflection AI，霍夫曼也参与了OpenAI的创立，并是微软董事会的成员。

Microsoft plans to include most of Inflection AI's members and has already announced its founder, Suleiman, as CEO of Microsoft AI on March 20. Foreign media believe that the deal will cost more than $650 million. Microsoft also announced plans to build an AI lab in London on April 7 and is currently looking for startups to work with.

Conclusion: The AI industry is adapting to market changes and customizing strategies to maintain technological competition

Despite the enormous potential of AI technology, startups are facing significant financial challenges. High technology costs and fierce market competition have forced Inflection AI, Stability AI, and Anthropic to adapt to market changes through partnerships, restructurings, or acquisitions. Even OpenAI's size faces challenges with sales expansion and data rights.

AI start-ups are struggling to survive, not only need to constantly adapt to market changes and find new growth points, but also face competition from big tech companies. While well-funded companies threaten the survival of small and micro startups to some extent, being acquired or merged by big tech companies doesn't mean it's a bad thing. While an acquisition means that a start-up ends operating independently, the fact that this situation provides more resources and stability for the startup.

Source: foreign media