A new area of ​​AI boom, even amid the technological gloom

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 was an instant hit, with more than a million people using it to create everything from poetry to high school term papers to rewrites of Queen songs.

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

The lab is in talks to complete a deal that would value it at about $29 billion, more than double its 2021 valuation, two people familiar with the discussions said. The potential deal — in which OpenAI would sell existing shares of the company in a so-called tender offer — could reach $300 million, depending on how many employees agree to sell their shares, they said. The company is also in discussions with Microsoft – which invested $1 billion in it in 2019 — for additional funds, two people said.

The uproar over OpenAI shows that even in the worst tech downturn in a generation, Silicon Valley’s deal-making machine is still running. After a humbling year, incl mass layoffs and layoffstech investors — a naturally optimistic bunch — are eager to get in on a hot trend.

No field has generated more excitement than generative artificial intelligence, the term for technology that can generate text, images, sounds and other media in response to brief prompts. Investors, experts and journalists have been talking about artificial intelligence for years, but the new wave – the result of more than a decade of research – represents a more powerful and mature breed of AI

This type of AI promises to reinvent everything from online search engines like Google to photo and graphic editors such as Photoshop to digital assistants like Alexa and Siri. Ultimately, it could provide a new way to interact with almost any software, allowing people to chat with computers and other devices as if they were chatting with another person.

This has caused dealmaking around generative AI companies to accelerate. Jasper, a generative AI startup founded in 2021, raised $125 million in October, valuing it at $1.5 billion. AI for stability, an imaging company founded in 2020, raised $101 million in the same month, valuing it at $1 billion. Smaller generative AI companies, including Character.AI, Replika and, have also been inundated with investor interest.

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

OpenAI’s $29 billion valuation was reported earlier from The Wall Street Journal. Venture capital firms Thrive Capital and Founders Fund may buy shares in the auction, two of the people said. Since OpenAI started as a non-profit company, determining its exact valuation is difficult.

OpenAI, Thrive Capital and Founders Fund did not provide comment 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 gain public attention until last spring, when OpenAI introduced a system called DALL-E which allow people to generate photorealistic images simply by describing what they want to see.

This has inspired entrepreneurs to dive in with new ideas and investors to make sweeping proclamations of disruption. Their enthusiasm reached new heights in December after OpenAI released ChatGPT, with fans taking advantage of the technology to generate love letters and business plans.

“This is the new ‘mobile’ paradigm shift we’ve all been waiting for,” said Nico Bonatsos, an investor at venture capital firm General Catalyst. “Maybe even bigger.”

Sequoia Capital Investors wrote that generative AI has “the potential to generate trillions of dollars of economic value.” And Lonne Jaffe, an investor at Insight Partners, said, “There’s definitely an element to this that feels like the early days of the Internet.”

Google, Meta and other tech giants are reluctant to release generative technologies to the general public because these systems often produce toxic content, including misinformation, 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 corporate brand — are more willing to release the technology publicly.

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

Still, many top researchers at Google, OpenAI, and other leading AI labs have struck out on their own in recent months to found new startups in the field. These startups have received some of the largest rounds of funding, with the excitement surrounding ChatGPT and DALL-E prompting venture capital firms to invest in even more young companies.

More than 450 startups are now working on generative AI, from number of one venture capital firm. And the frenzy is compounded by investors’ eagerness to find the next big thing in a bleak environment.

Michael Dempsey, an investor at venture firm Compound, said the tech downturn — which last year included a crypto crash, poor stock performance and layoffs at many companies — had created a lull among investors.

Back then, “everyone got excited about AI,” he said. “People need something to tell their investors or themselves, honestly, that there’s the next thing to be excited about.”

Some worry that the hype surrounding generative AI has overtaken the reality. The technology has raised difficult ethical questions about how generative AI could affect copyright and whether companies should get permission to use the data that trains their algorithms. Others believe that big tech companies like Google will quickly beat out young entrants and that some of the new companies have little competitive advantage.

“There are a lot of teams that don’t have any AI expertise that are posing as AI companies,” Mr. Dempsey said.

These concerns haven’t slowed the build-up of excitement, especially since the arrival of Stability AI in October.

The startup had helped fund an open-source software project that quickly built imaging technology that worked much like DALL-E. The difference was that while OpenAI shared DALL-E with only a small number of testers, the open source version of Stability AI — Stable Diffusion — could be used by anyone. People quickly used the tool to create photorealistic images of everything from a medieval knight crying in the rain to Disneyland painted by Van Gogh.

In the ensuing excitement, Evgenia Kuida, founder and CEO of Replika chat bot launch, said in an interview that she had been contacted by “every venture capital firm in Silicon Valley,” or more than 30 firms. She accepted their calls but decided not to get additional funding because her company, founded in 2014, is profitable.

“I feel like a person who was a week earlier arriving at the airport for a flight – and now the flight is boarding,” she said.

Character.AI, another chatbot company, and, which is adding chat technology to its Internet search engine, have also been inundated with interest from venture capitalists, the companies said.

Sharif Shamim, an entrepreneur who built a searchable database of images created by Stable Diffusion in August called Lexica, said his tool quickly reached one million users — a sign that it needs to move from its existing startup to focus on Lexica. Within weeks, he raised $5 million in funding for the project.

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

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

Radical Ventures, a Toronto venture firm, one of the global centers for AI 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 those bets look even better.

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

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