OpenAI settles into its VC era
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OpenAI has led the movement in commercial AI models (and hype). Increasingly, the ChatGPT maker has also been reaching into the startup world, investing in and acquiring companies at various stages. Over the past two years, the company has backed more than 20 startups and acquired three.
In a new report, CB Insights broke down OpenAI’s investments and what they say about the company’s strategy and its vision for the future of AI. Overall, the deals span across developer tools, data management infrastructure, enterprise workflow automation, robotics, media, edTech, and health. Many of the companies OpenAI has backed are directly helping the company build its own infrastructure and enterprise-targeted AI. Others offer inroads into what the company believes could be AI’s killer apps for consumers, specifically big bets in learning and personal health.
“OpenAI’s recent investments point to potential growth opportunities for the firm, especially as it faces pressure to earn its eye-watering $80 billion valuation and stay ahead of competitors in the fast-moving generative AI market,” reads the report.
In the near term, it’s clear OpenAI views enterprise AI as its big opportunity. The company has invested in a variety of startups that offer capabilities across horizontal functions like sales, design, and coding, as well as several specific to different verticals like health care and law. One notable example is OpenAI’s continued investment in legal AI company Harvey, which it’s backed across four rounds including the company’s $100 million Series C last week. It makes sense: Users of ChatGPT Enterprise grew 4x in just a few months from 150,000 in January of this year to 600,000 in April, the company announced in April. Enterprises also have the most bandwidth available to experiment with generative AI, which requires a lot of financial and personnel resources from specialized engineering talent and employee training to compliance and the costs associated with the technology itself.
The company’s three acquisitions—digital product company Global Illumination (2023), video calling platform Multi (June 2024), and analytics and database company Rocketset (June 2024)—also represent the company’s focus on accelerating its enterprise strategy. Seeing as OpenAI just made two of these buys in June, it also suggests the company is accelerating its efforts around investments and M&A.
“OpenAI’s recent acquisitions share a few common traits: they focus on small teams with strong talent, they’re relatively early in their commercial trajectory, and they develop enterprise AI tools or infrastructure,” notes the report.
On the consumer front, OpenAI has thrown its weight behind areas where it could most easily integrate into users’ daily lives. One example is Thrive AI Health, which OpenAI is jointly funding with Huffington Post cofounder and Thrive Global CEO Arianna Huffington. The company aims to build a personalized AI-powered health coach to give users better insights into their health and gently nudge them toward healthier habits across areas like diet, sleep, and stress through real-time alerts. There’s also Speak, a language-learning app. If the success of Duolingo—which reported 31.4 million daily active users and record profitability in Q1 2024—is any indicator, users are definitely interested in making learning a new language a daily habit.
Perhaps the most interesting of OpenAI’s investments, however, are the long-term bets in companies developing applications to bring AI into the physical world. The Open AI Startup Fund co-led rounds for humanoid robotics developers 1X and Figure AI, including a $675 million Series B round for Figure AI in February that marked its biggest deal to date. Both companies are also tapping OpenAI’s technology to integrate into their robotics.
Like the company itself, OpenAI’s investments have also come with some controversies related to its unusual corporate structure. Earlier this year, it was revealed that although the OpenAI Startup Fund—which launched in 2021 and is the entity behind many of the company’s investments—was presented as a typical corporate venture arm, Sam Altman himself owned and controlled the fund, making investment decisions and raising money from outside limited partners. OpenAI changed the fund’s governance structure in March to remove him from control. Outside of OpenAI, Sam Altman is also known as one of the most prolific individual investors of AI companies, which has raised concerns around conflicts of interest and how he may be directly benefiting from OpenAI’s success through his wide net of investments in AI companies. Much of his portfolio is unknown, the Wall Street Journal reported he’s invested in more than 400 companies.
While OpenAI is ramping up its investments in generative AI startups, others are starting to question if investments in AI should slow down. In recent weeks, a growing number of Silicon Valley investors and Wall Street analysts started sounding the alarm about the AI gold rush and their fears that a bubble is forming. Goldman Sachs, Barclays, and Sequoia Capital, for example, all recently published reports arguing that the technology may not be able to make enough money to justify all the spending.
Still, venture capital investment into AI startups has yet to slow. In the first half of 2023, 225 AI startups raised $12.3 billion from VCs. In the first half of 2024, VCs yet again invested $12.3 billion into AI startups, investing in 255 companies, TechCrunch reported. Everyone has been pouring too much into generative AI to reel it in just yet.
And with that, here’s more AI news.
Sage Lazzaro
sage.lazzaro@consultant.fortune.com
sagelazzaro.com
This story was originally featured on Fortune.com