Eye On AI: OpenAI Goes On A Buying Spree As AI Looks To Open Up M&A, IPO Markets

This column is a look back at the week that was in AI. Read the previous one here.

It may be the big funding rounds that grab the headlines when it comes to the startup world, but for investors it’s the exit that actually matters.

For the past few years the M&A market for startups has been slow — and the IPO pipeline nonexistent.

However, just as AI is taking over venture, perhaps it is doing that for the M&A and IPO markets.

OpenAI — which reportedly has doubled annualized revenue to $3.4 billion — opened up its wallet the past few days to make two deals happen. The creator of ChatGPT first bought search and analytics startup Rockset last week. The San Mateo, California-based company had raised nearly $118 million in capital, per Crunchbase. Terms of the deal were not disclosed.

Then just this week, the AI giant bought video collaboration startup Multi, previously Remotion, in what was reportedly an acqui-hire. The San Francisco-based company had raised $13 million to date, per Crunchbase.

Overall, M&A has picked up slightly involving startups, per Crunchbase data. The current quarter already has witnessed more activity than Q1, with more than 430 deals. However, those numbers are still relatively low compared to quarters in previous years.

While those two deals will not set fire to the M&A market, it doubled the amount of deals OpenAI had previously done according to Crunchbase. It may show a new willingness for inorganic growth, a desire nearly all Big Tech companies must gain as they get larger. With OpenAI’s ever-expanding revenue numbers and the value of the company ever increasing, it certainly has the wherewithal to easily become a Goliath among suitors.

However, M&A is not the only way to exit, and AI may be looking to help there too. Last week, artificial intelligence chips startup Cerebras Systems reportedly filed confidentially for an initial public offering.

It’s a good time to be an AI chip developer. Nvidia has become one of the most — if not the most — valuable companies in the world and funding is currently gaining traction in the sector. Astera Labs — which provides data and memory connectivity solutions for some of the biggest chipmakers in the world — had a successful IPO even though its shares have tailed off its highs.

Other companies that went public this year had strong AI ties — like biotech Tempus AI — or played up their AI connections strongly — like Reddit.

Public investors are clearly intrigued by the AI tech play and where it may lead.

Investors have waited a couple years for the IPO and M&A markets to open back up, and it would not be surprising for AI to lead that charge — just as it seems to be leading everything else.

If big AI companies like OpenAI and perhaps Nvidia — which is showing interest in taking on the cloud services providers — start to get acquisitive and more startups think the time is right to test the public market, investors may start to see those long-awaited returns rolling in.

Things that caught our eye and other stuff:

• The soap opera at Stability AI took another turn this week, as investors that included ex-Facebook President Sean Parker committed $80 million to take over the artificial intelligence-driven visual art startup. Per a story in The Wall Street Journal, the new investors made a deal with suppliers to forgive some $100 million owed by Stability and also negotiated for the startup to be released from $300 million in future obligations. It’s the latest twist for Stability, which locked up a $101 million raise led by Coatue, Lightspeed Venture Partners and O’Shaughnessy Ventures in 2022. The company did not release a valuation at the time, but Bloomberg reported the new cash infusion valued the company at around $1 billion. However, in spring of last year Forbes reported Stability AI’s founder Emad Mostaque made exaggerated statements about both his own background and his generative AI startup. At the time, some AI researchers disputed the startup’s claims that it created the image generator Stable Diffusion, an open-source project developed by researchers. It also was reported the London-based startup was looking to raise an additional $1 billion of capital at a multibillion-dollar valuation, but talks had stalled. In March, reports surfaced that Mostaque left the company after an investor revolt. The company said in an internal memo it was trying to “right-size” the business after a period of unsustainable growth, per the report. Finally, in April the startup laid off 10% — estimated to be about 20 people — of its workforce, per a report by CNBC. That’s quite the whirlwind — even for an AI startup.
• Another round that caught our attention this week was raised by a Palo Alto, California-based startup. MEandMine, a developer of AI-flagging to identify psychological risks in young children, raised $4.5 million in funding led by K5 Global. The startup offers AI-powered screening to identify students’ psychological risks in real time by playing games with data points that are used for AI-flagging, allowing teachers, counselors and others to screen early and make informed decisions. Initial results from its California school pilots show a 91% accuracy, the company says. MEandMine’s algorithm launches games based on individual students’ makeup, and can help them center themselves.

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Illustration: Dom Guzman