Microsoft’s Commitment to a ‘Good Outcome’ for Inflection AI VCs: Reid Hoffman’s Promise Fulfilled
Details regarding Microsoft’s compensation to the investors of Inflection AI, as part of their unique deal to secure the co-founders, significant portion of the team, and the rights to utilize the technology, have not been disclosed publicly. Microsoft has chosen not to comment on this issue.
However, unnamed sources have informed The Information that Microsoft intends to pay approximately $650 million. This sum consists of $620 million for non-exclusive licensing fees for the technology (which means Inflection can still license it elsewhere) and $30 million for Inflection’s agreement to not sue Microsoft over poaching key personnel, including co-founders Mustafa Suleyman and Karén Simonyan.
Reid Hoffman, Microsoft’s board member and a co-founder of Inflection, along with his VC firm Greylock, assured in a LinkedIn post that all of Inflection’s investors will reap positive results from this deal. He also highlighted the encouraging future prospects this merger entails.
Based on reports from The Information, early round investors who contributed $225 million will receive 1.5 times their capital, while investors from the $1.3 billion round will receive 1.1 times their investment. Though the calculated sum does not coincide with the reported $650 million deal, these investors can retain their equity in the remaining framework of the startup. The newly-formed company will shift its focus away from developing a personalized AI chatbot named Pi undergirded by an extensive framework of 22,000 elusive and expensive AI chips by Nvidia. Instead, it will transition into an AI studio helping other enterprises work with large language model AI.
Inflection has not provided a comment on the situation.
Although Inflection, an aspiring competitor to OpenAI, was only established in 2022, it quickly managed to secure investment totaling more than a billion dollars, with a valuation at $4 billion. Notable investors included Microsoft co-founder Bill Gates, Microsoft itself, former Google CEO Eric Schmidt, Dragoneer Investment Group, Nvidia, among others.
It’s worth noting that Microsoft has essentially provided a safety net for Gates (who is no longer formally part of the company, but possesses substantial influence) and its board member’s venture capital firm, regarding their ambitious and potentially unfruitful endeavor into AI. Major cloud service providers have already formed alliances with other chatbot developers: Microsoft with OpenAI, Google and Amazon with Anthropic, and Cohere with various others including Oracle and Salesforce.
As for Inflection, it remains uncertain whether, given its vast AI infrastructure, it will ever successfully refine Pi. The competition, it appears, is ahead.
Interestingly, the money Microsoft is spending to gut this startup may be worth it. True, Suleyman has a somewhat cloudy reputation as a boss, according a 2021 investigation by The Wall Street Journal that alleged bullying behavior. But Microsoft itself, while kinder and softer under CEO Satya Nadella, still has a long history as a tough workplace.
And who better to hire than the founder and technical geniuses behind Google DeepMind, now with experience building an LLM? The co-founders are familiar with Google’s secrets well as next-gen AI. Simonyan, for instance, helped spearhead AlphaZero, the AI that mastered the board game Go.
Despite close ties with OpenAI, Microsoft also has many reasons to be needing a backup for its all-important AI gambit. For one, the FTC said it’s looking into its deal with OpenAI, as well as Anthropic’s deals with Amazon and Google. Should some sort of FTC mandates be issued, Microsoft would be wise to have options.
Plus, word is that some of Microsoft’s engineers and OpenAI’s engineers don’t have the most loving relationship, Business Insider has reported. Then there was the Sam Altman firing saga that had Nadella telling the world he was absorbing Altman and much of OpenAI, only to walk it back.
There are so many red flags with OpenAI that Microsoft is wise to wean its dependence.
Then again, just like Microsoft’s investment in OpenAI, we wonder if regulators will also have something to say about this deal.
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