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VCs compete for the next AI transaction on Big Tech's turf.

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PALO ALTO: A number of venture capitalists (VC) from the US and Britain scurried to Paris in December and January to compete for a share in a new artificial intelligence (AI) startup that has the potential to transform the way people work.

They courted a startup called Dust, which had only two employees. It hadn’t yet been integrated. In addition, it turned down a significant offer from renowned investment company Coatue Management, according to three individuals familiar with the matter who spoke to Reuters.

According to two of the sources, Sequoia Capital triumphed after organising a substantial $5 million “seed” financing round. Dust intends to create AI solutions that increase the productivity of white-collar professionals.


Silicon Valley is more competitive now because of Alphabet and Microsoft’s aggressive AI drive and billions of dollars they are investing to obtain an advantage. Startups in the sector are attracting bids from investors to compete with their Big Tech counterparts, and they are concluding agreements in days rather than weeks.

It is a ray of hope in a venture capital market that is often weak. A Sequoia Capital partner who managed the Dust transaction and is exploring productivity applications on the theory that “disruption is inevitable,” Konstantine Buhler, said that “Big Tech companies with massive investments in AI are not going to let their incumbent distribution advantage slip away easily.” Generative artificial intelligence (GAI), a subset of AI that has gained enormous appeal, is the subject of an investment craze.

Microsoft-backed firm OpenAI’s ChatGPT chatbot. After being educated using historical data inputs, such technology is capable of producing almost any word, picture, or other type of information at will. An American inventor of generative AI told Reuters that “VCs think this is the new internet.” According to data from PitchBook, investment in such businesses has increased dramatically, rising from $1.5 billion in 2020 to $5.9 billion since the beginning of 2022.

Venture capitalists stated there is still a lot of interest in supporting AI businesses, particularly for the best early-stage entrepreneurs, despite the possibility that the closing of Silicon Valley Bank (SVB) may hinder loan financing. The company is receiving a lot more submissions for generative AI, according to Samir Kaul, a founding partner at Khosla Ventures, which was also an early supporter of OpenAI.

Venture capitalists are starting to exhibit a herd mentality, according to Kaul. Accordingly, unimpressive businesses “will get funded,” then “collapse and ruin the whole industry, which is really hopeful.” Because “more than 90% of venture capitalists are actually very risk averse,” ChatGPT sparked a wave of significant investment. People don’t really jump in until you see a practical application, he claimed. Concurrent offers The human-like replies ChatGPT provided to every enquiry led onlookers to theorise that AI may undermine Google’s market leadership and search engine technology. Microsoft updated its search rival Bing two months after its debut with a chatbot that uses OpenAI’s technology. Investors saw potential, even for a sale rather than an IPO; some are wagering that AI.

Due to their size, startups may outperform more established competitors. Incorporating generative AI technology has given You.com, a search engine business formed in 2020 and supported by Salesforce CEO Marc Benioff, new vitality. With millions of queries handled each day, it has garnered increased interest from investors and consumers, the business told Reuters. You.com was backed by Radical Ventures managing partner Jordan Jacobs, who also called the startup “an example of how the right people with the right technology and opportunity, can disrupt even the most successful business models in the world.” Writing aides like Jasper and Regie.ai, among other productivity aids, have attracted millions of dollars in financing. These businesses gained customers by making it easier for salesmen and bloggers to complete their tasks.

But now, Microsoft Word and Google Docs have improvements that can create marketing content. It’s unknown how Jasper and Regie.ai will perform after the release of such competing technologies. The CEO of Regie.ai previously told Reuters that the company was well-positioned due to its internal knowledge and sales emphasis, while a vice president of Jasper claimed that it stood out due to its AI that produces on-brand content across platforms. Investors are searching for any technical edge that might distinguish a startup rival in such intense competition. For instance, according to Jill Chase, partner at CapitalG who oversaw the tool’s investment round, Magic, a software engineering tool that aids in writing and editing code, is developing its own specialist AI and user interface. $23 million has been raised by the business in an attempt to take on Microsoft-owned GitHub. Even so, there are situations when competition among investors themselves drives higher prices. According to Saam Motamedi, a partner at the venture capital company, Greylock recently declined to support a founder who received ten competing proposals to lead a financing round, an exceptionally high amount. According to him, deals that once required up to six weeks of so-called Series A funding are now completed in just a few days. “The majority of our rivals have submitted several term sheets for anything we’ve done in AI. Entrepreneurs have the luxury of choosing the people they wish to collaborate with, according to Motamedi. According on what is occurring, the setting may be described as excessive or even exuberant.

But there is a lot of substance below it, he added.

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