(Bloomberg) — In the halcyon days before Christmas last year, when most venture capitalists had retreated to vacation spots in Aspen or Jackson Hole, the investment team at Lightspeed Venture Partners was considering a bid for a unit of OpenAI rival Anthropic.
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The venture capital firm approached Anthropic with an offer to lead a multibillion-dollar investment, according to a person familiar with the matter. A deal quickly took shape: a $2 billion funding round at a $60 billion valuation, tripling what the startup was worth a year earlier. The deal was actually completed at the beginning of January.
With $25 billion under management, Lightspeed is part of a rare group of venture capital firms willing and able to back the hottest and most expensive technology companies. In addition to Anthropic, Lightspeed recently participated in a major funding round for artificial intelligence company Databricks Inc., which valued it at $62 billion, as well as an investment in Elon Musk’s xAI at a $50 billion valuation.
AI megadeals have become a staple of the top-tier VC diet, despite the risks, including the fact that companies have not yet proven they can profit from these investments.
“It’s high-stakes poker,” says Tim Guleri, Managing Partner of Sierra Ventures, an AI investor.
In the past three months alone, xAI, OpenAI, and Anthropic have raised more than $20 billion to cover their high computing costs. These deals collectively valued the three companies at more than $250 billion. According to data from PitchBook, US AI startups will have raised a total of $97 billion by 2024.
For venture capitalists, there is increasing pressure – especially on those who have missed the opportunity to back the best AI companies at lower prices – to join the leading players before it is too late, investors say. Representatives for Lightspeed and Anthropic declined to comment for this story.
“It shows that you’re on board,” says Peter Werner, co-chair of Cooley’s venture capital practice group. “What you don’t want to be is a VC trying to be part of the mix, missing out or building a reputation for not being agile enough to get into the best and hottest rounds.”
VC shift
Lightspeed was founded more than twenty years ago after the Internet crisis by Barry Eggers, Christopher Schaepe, Peter Nieh and Ravi Mhatre, who led the anthropic negotiations. It is best known for its smart investments in consumer technology, fintech and enterprise software, making early bets on companies like Snap Inc., Affirm Holdings Inc. and Rubrik Inc. Despite its track record, the company has not yet become a household name. as some of the most famous VC players at level one. With its aggressive AI bets, insiders say these deals could permanently improve its position – if they succeed.
Like much of the VC industry, Lightspeed has turned its attention to AI startups, backing early-stage companies such as music company Suno Inc. and the video startup Pika, among bigger players. In December, it parted ways with its two top consumer investors and said it was adapting its consumer investment strategy to better align with the “age of AI.”
In total, Lightspeed has already invested $2.2 billion in AI deals, a figure that does not include the latest Anthropic investment, according to another person familiar with the matter. Soon it will have extra firepower to attack the money-hungry companies. A fundraising effort expected to raise $7 billion is nearing the end, a person familiar with the matter said. A Lightspeed spokesperson declined to comment on the fundraising. The fundraising efforts were previously reported in De Informatie.
The company’s Anthropic investment is one of its most ambitious to date. And while the $60 billion valuation seems eye-wateringly high, Lightspeed’s partners are hopeful that the deal will one day seem like a bargain.
“Overall, it feels like the valuations are expensive because we’re seeing a lot of activity and a lot of deal closings,” Lightspeed Partner Guru Chahal said at a Fortune Brainstorm Tech conference last year. “Looking back, every round seemed incredibly expensive at the time and, in retrospect, incredibly cheap.”
Major AI deals remain a source of contention in Silicon Valley. While the largest companies are proving to be the most transformative, some venture capitalists argue that participating in massive funding rounds won’t deliver the returns tech investors need to satisfy their supporters. These investors are focusing on smaller AI apps and services, rather than the giants like Anthropic and OpenAI, which are concerned with developing the expensive building blocks of the industry.
The recent proliferation of AI megadeals also signals a broader shift in venture capital: a departure from the traditional strategy of early-stage investing, where companies acquire larger stakes at lower valuations. Now venture capital firms are paying a big premium, betting that a small number of AI companies could eventually be worth more than $1 trillion.
The growing size of venture capital funds has also forced companies to write bigger checks, Weber said. Instead of seeking massive multiplications of their investments, companies are “not necessarily trying to find home runs, they’re trying to find ways to double their money,” he said.
“There are only so many iconic, generational pre-IPO companies today,” said IVP General Partner Ajay Vashee. “If your mandate at that stage is to invest, then you need to find opportunities to put your capital to work.”
Shaky start
The race to find those opportunities is fraught with risks, including regulatory uncertainty, fierce competition and rising infrastructure costs for leading AI developers.
Investors fear their AI bets will fall short, leaving companies at risk if the bubble bursts. The sector has already seen several billion-dollar companies stumble.
For example, Lightspeed co-led a high-profile investment in Stability AI, the developer of the image generator Stable Diffusion, which was valued at $1 billion in 2022. Shortly afterwards, several key developers resigned from the company amid rising tensions with the erratic Chief Executive. Agent Emad Mostaque, lawsuits and financial problems. Mostaque resigned from the company in early 2024. The company has since appointed a new CEO and raised additional capital, Bloomberg reports.
Lightspeed is also a major investor in Mistral, the Paris-based open source company that now competes with a slew of better-funded language models.
Naturally, Lightspeed and other leading VC firms are hopeful that placing multiple bets on rival companies will yield at least one big AI winner. If not, the consequences can be significant.
“You can’t lose too many games in this high-stakes poker,” said Sierra Ventures’ Guleri. “That is the risk of the strategy.”