Elon Musk is reportedly looking to raise up to $6 billion for xAI, his fledgling ChatGPT competitor, according to a Financial times report fell on Friday morning. Although in the afternoon, Musk had denied who was raising funds.
Either way, xAI isn't Musk's first AI rodeo. Musk, co-founder of OpenAI, left the company in 2018. Although there are conflicting accounts of why Musk left OpenAI, with explanations ranging from Tesla conflicts to personal power struggles, one thing is certain: when Musk introduced xAI, he had characteristically great ambitions. The company's goal is nothing less than "to understand the true nature of the universe" and, as he himself he tweeted in Julyto "understand reality."
If these ambitious goals are taken at face value, perhaps $6 billion is not too much to ask for such advances. However, in the context of what it takes to develop even the most advanced of today's AI models, $6 billion is a staggering amount of money.
For Greg Osuri, founder and CEO of computing resources marketplace Akash Network, the gigantic sum is a clue that Musk could be planning to go "full stack," that is, controlling all the elements of an artificial intelligence system, from the LLM software. to the necessary computing power hardware.
Instead of relying on data centers from Alphabet, Amazon or Microsoft (as OpenAI and Anthropic do), Musk could build, own and operate his own $6 billion data center, at least for a few years, Osuri said. Could Musk be thinking even further and want to produce his own chips for data centers? Probably not, Osuri reckons. That's what makes the $6 billion figure so “interesting.”
“It is too small a price for [chip] production, too big for a [LLM] training race,” he said. “You can train a lot with 6 billion dollars, but it is not enough to have your own [chip] foundry."
So if Musk is raising capital, who exactly would he raise $6 billion from? According to him FOOT, the answer lies with large investors (probably sovereign wealth funds) in the Middle East and Asia. According to Musk, the answer is no one: "I have not had conversations with anyone in this regard," his X statement reads.
Musk's options among American venture capitalists are limited, and for reasons that have nothing to do with the messy Twitter saga. Many venture capitalists have already staked their stakes elsewhere. OpenAI has raised $11.3 billion, according to Crunchbase, and it's a star-studded cap chart. Khosla Ventures was an initial investor, while Sequoia Capital, Andreessen Horowitz, Thrive Capital and K2 Global all have reportedly bought shares in OpenAI.
And xAI is expressly designed to be a competitor to OpenAI, making it difficult for Musk to pursue deals with old allies (like, say, Marc Andreessen, who helped back his acquisition of Twitter).
"It becomes difficult because within a portfolio, the idea is that founders and LPs try to do the best they can, and that is done by avoiding conflicts of interest, especially when large sums of capital are involved," said Madeline Darcy, founder and managing partner of Kaya Ventures, he says. "If you invest in too many competing companies, Partner A will go to one board meeting, Partner B will go to another, and then inevitably they will meet on Monday to talk about the portfolio."
Still, Musk has been recruiting a team to defend his AI claim: his xAI inner circle. includes executives of DeepMind from Google, Microsoft and Tesla. Morgan Stanley appears to be in too; the bank helped finance Musk's Twitter acquisition and is now reportedly involved in xAI's fundraising process. (Reached for FortuneMorgan Stanley declined to comment.)
I find myself thinking about the Wild West, probably because I'm watching the HBO series. old thing—a profane but Shakespearean show about the ever-changing power dynamics in a frontier town. The third and final season begs the question: Who is best positioned to win in a gold rush? Is it the person who files your claim first and has a drive to inspect the land? Or is it the well-connected businessman who comes on the market later, with money, resources and influence?
I'm only halfway through the third season, so I don't know how it will end.
One more thing…Term Sheet is partnering again with Semaphore for its 16th annual trust survey of private equity, venture capital, hedge funds and other professionals. For the curious, a preliminary result: so far, the US House of Representatives has a trust rating of 1%, while the US Senate has 9% trust. We would love your opinion; It's anonymous and should take you between 3 and 4 minutes. You can take the survey. here. Take a look at last year's results. here, hereand here.
See you tomorrow,
Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
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Joe Abrams curated the deals section of today's newsletter.
ENTREPRENEURIAL OFFERS
- Transmutex SAa nuclear engineering company based in Geneva, Switzerland, raised $23 million in a Series A extension. Union Square Ventures and Steel Atlas led the round and were joined In a company, HCVC, AlleyCorpand others.
PRIVATE CAPITAL
- Vista Equity Partners took Participate intelligentlya $4 billion privately held provider of customer engagement software and integrated payments solutions based in Braintree, Massachusetts.
- smart bearsupported by Vista Equity Partners and Francisco Partnersacquired Reflect, a Philadelphia, Pennsylvania-based AI-powered no-code testing platform for web applications. Financial terms were not disclosed.
- Hydraulic Summita holding company North Branch Capitalacquired Metric Piping and Hydraulics, a hydraulic and industrial hose supplier based in Alvin, Texas. Financial terms were not disclosed.
DEPARTURES
- ansys agreed to acquire a minority stake in humaneticsa Farmington Hills, Michigan-based producer of crash dummies and other safety solutions for automotive manufacturing, space missions and other applications. Bridgepoint Group. Financial terms were not disclosed.
OTHER
- Autodesk (NAS:ADSK) agreed to acquire Payment applications, a Melbourne, Australia-based provider of construction payment and compliance management solutions. Financial terms were not disclosed.
IPOS
- Spring Bright Health, a Louisville, Kentucky-based healthcare provider, plans to raise up to $960 million in an offering of 53.3 million shares priced between $15 and $18. The company posted revenue of $8.4 billion for the year ended September 30, 2023. kkr and Walgreens support the company.
- ArriVent BioPharmaA Newtown Square, Pennsylvania-based biotechnology company that develops cancer drugs raised $175 million in an offering of 9.7 million shares priced at $18. Lilly Asia Ventures, Octagon Capital Advisors, OrbiMed, Shanghai Allist Pharmaceuticals, Sofinnova Venture Partners, Hillhouse Investment Managementand Sirona Capital Partners support the company.
