It's unclear publicly how much exactly Microsoft is paying all of Inflection AI's investors as part of a bizarrely structured deal that fleeces its co-founders, much of its staff, and the rights to use its technology. It has not been. And Microsoft declined to comment when contacted.
However, anonymous sources say the company is shelling out around $650 million. That includes $620 million in non-exclusive license fees for the technology (meaning Inflection is free to license it elsewhere) and an agreement not to sue Microsoft for poaching it. Inflection's $30 million. It also includes co-founders Mustafa Suleiman and Karen Simonian.
Microsoft board member Reid Hoffman, co-founder of Inflection and an investor in Inflection, along with his VC firm Greylock, said, “All of our investors in Inflection will get a good result today, and I'm confident that we will get a good result in the future.'' “I look forward to an increase,” he assured. LinkedIn post from earlier this week.
Investors in the initial $225 million round will receive 1.5x their investment. Companies that later participate in his $1.3 billion round will receive 1.1x his investment, according to The Information. Although this calculation doesn't add up to $650 million, these investors will also retain a stake in the remaining startup skeleton. But the new company plans to pivot away from building a personalized AI chatbot, named Pi, on a massive computer structure powered by 22,000 of Nvidia's expensive and hard-to-find AI chips. From now on, we will be an AI studio that helps other companies work with large-scale language model AI.
Inflexion did not respond to requests for comment.
Founded in 2022, Inflection has raised more than $1 billion at a $4 billion valuation in its short life as an ambitious competitor to OpenAI. From who's who: Microsoft co-founder Bill Gates, Microsoft itself, and former Google CEO Eric Schmidt, Dragoneer Investment Group, Nvidia, and more.
Let me state the obvious. Microsoft gave its expensive and probably wasteful AI business a soft landing in a VC firm led by Gates (technically no longer with the company, but still a god-like figure) and his executives. All of the major cloud vendors already have other chatbot partners. We have a variety of partners on board, including Microsoft with OpenAI, Google and Amazon with Anthropic, and Cohere with Oracle and Salesforce.
If Inflection had perfected Pi on top of its massive AI infrastructure, it looked like the race was already lost.
Interestingly, the money Microsoft is spending to gut this startup may be worth it. Indeed, Mr. Suleiman has a somewhat cloudy reputation as his boss, according to a 2021 investigation by the Wall Street Journal alleging bullying behavior. But Microsoft itself still has a long history of being a tough place to work, even though it has become kinder and more flexible under CEO Satya Nadella.
And who better to hire than the founder of Google DeepMind, a tech genius with experience building LLMs? Co-founders know Google's secrets and the next generation of AI. For example, Simonyan helped spearhead his AlphaZero, his AI that mastered the board game Go.
Despite its close relationship with OpenAI, Microsoft also has many reasons to need backup for its all-important AI strategy. As examples, the FTC said it is investigating its dealings with OpenAI and Anthropic's dealings with Amazon and Google. If any FTC orders are issued, Microsoft would be wise to have options.
Additionally, Business Insider reports that there are rumors that some Microsoft engineers and OpenAI engineers don't have a very loving relationship. Then there was the Sam Altman ouster drama that told the world that Nadella was absorbing much of Altman and his OpenAI, only to backtrack.
There are many red flags with OpenAI, so Microsoft would be wise to wean itself from its dependence.
Again, as with Microsoft's investment in OpenAI, we wonder if regulators will have anything to say about this deal.