The reshuffling of major AI companies has begun. Suddenly, several well-known startups are seeking acquisition. These include:
- Adept, valued at over $1 billion, co-founded by the Transformer author.
- Humane, valued between $750 million and $1 billion, is known for its AI Pin hardware.
- Stability AI, the creator of Stable Diffusion, is one of the earliest AI unicorns.
Meanwhile, Reka AI, founded by former Google scientist Yi Tay, broke off acquisition talks. The search tool Perplexity, praised by industry leaders, also considered acquisition earlier this year.
Why is there a sudden rush for acquisitions in the AI sector? What are the underlying factors?
Multiple Companies Seeking Acquisition
Adept, co-founded two years ago by Ashish Vaswani (now departed) and another Transformer author, Niki Palmer, is notable. However, the co-founders left to create Essential AI, leaving David Luan as the remaining co-founder. Adept, valued at $1 billion, has secured $400 million from investors including Frontiers Capital, Microsoft, and NVIDIA.
Notable individual investors include LinkedIn co-founder Reid Hoffman, Uber CEO Dara Khosrowshahi, former Tesla autopilot head Andrej Karpathy, and Adobe’s Chief Product Officer Scott Belsky.
Adept’s first product, ACT-1, launched in 2022, uses Transformer-based models to perform computer operations based on natural language commands. Last month, Adept was listed in Forbes’ 2024 “AI 50 Strong” but is now seeking buyers, reportedly in talks with Meta.
Humane, known for its wearable AI device AI Pin, is also exploring potential buyers with a target price of $750 million to $1 billion.
Founded in 2018 by former Apple executives Bethany Bongiorno and Imran Chaudhri, Humane was valued at $850 million last year.
The company has raised around $230 million from investors such as Microsoft, Qualcomm, and OpenAI CEO Sam Altman. AI Pin, priced at $699 with a $24 monthly subscription, has faced criticism for high costs and technical issues, leading to poor sales and the current acquisition search.
Reka AI, founded by Google and Meta scientists, recently broke off a $1 billion acquisition deal with data warehouse platform Snowflake. Reka, valued at $300 million, previously received funding from Snowflake. The deal fell through, possibly due to disagreements over the acquisition price.
Stability AI is considering a merger, with progress unknown. Perplexity was also rumored to be seeking an acquisition in January but has since raised $73.6 million in a B round, pausing its acquisition plans.
Reasons for the “Acquisition Wave”
The push for acquisitions stems from several factors, including financial pressures, uncertain business models, and intense market competition. Stability AI, for instance, faces financial strain, with Q1 2024 revenues under $5 million and losses exceeding $30 million.
The company owes nearly $100 million to cloud providers and other businesses. Perplexity’s concerns revolve around balancing funding and revenues against high AI model development costs.
Stability AI’s open-source model, Stable Diffusion, has not yet generated significant revenue and is struggling to transition from open-source to a paid model. In March, Stability AI saw internal upheaval, with the CEO and core team resigning amid investor pressure.
Perplexity’s monetization through subscriptions and API payments generates annual recurring revenue of $8 million, which is insufficient against high development costs.
Sam Altman mentioned that GPT development costs over $100 million. Half of Anthropic’s revenue reportedly covers server fees from Amazon and Google Cloud.
AI startups also face fierce competition from tech giants like Microsoft, Google, and Meta. The industry consensus is that even $1 billion might not suffice for startups to compete. Databricks’ CEO highlighted the importance of survival over innovation.
DeepL, an AI translation company, found success by focusing on its niche without extensive model development. Character.ai, known for AI companions, is seeking both consumer and business partnerships.
Acquisition remains a viable survival strategy, with giants seeking talent and technology. Microsoft, for instance, absorbed Inflection’s technology and team, with founders leading a new AI division.
The AI sector’s new reshuffling period reflects investment shifts towards leading models and application layers. Domestic markets also show significant trends, influenced by recent API price wars.
In conclusion, AI startups must navigate financial and competitive challenges, exploring commercial success through targeted applications or partnerships.
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