Generative AI Unicorns Rule the Startup Roost; OpenAI
in the Spotlight
By the
Curmudgeon
Introduction:
Despite mounting pressure on venture capital in a difficult economic environment, money is still flowing
into generative Artificial Intelligence (AI) startups. Indeed, AI startups
have emerged as a bright spot for VC investments this year amid a wider slowdown
in funding caused by rising interest rates, a slowing economy and high
inflation.
VCs have already poured $10.7 billion into Generative AI [1.] start-ups
within the first three months of this year, a thirteen-fold increase from a
year earlier, according to PitchBook, which tracks start-ups.
Note 1. Generative AI is a type of artificial intelligence that
can create new content, such as text, synthetic data,
images, and audio. The recent buzz
around Generative AI has been driven by the simplicity of new user interfaces for
creating high-quality content in a matter of seconds.
.
.
Tech giants have poured effort and billions of dollars into
what they say is a transformative technology, even amid rising concerns about
A.I.s role in spreading misinformation, killing jobs
and one day matching human intelligence.
More on that theme from Gary Marcus in the Conclusions
of this post.
What the cheerleaders dont
publicize is that the results (especially from ChatGPT) may be incorrect or
inconclusive.
We take a close look at Generative AI Unicorns with an
emphasis on OpenAI (the creator of ChatGPT) and the competition it will
face from Google DeepMind.
Generative AI Unicorns and OpenAI:
AI startups make up half of all new unicorns (startups valued
at more than $1B) in 2023, says CBInsights.
At Generative AI firms, startups are reaching $1 billion
valuations at lightning speed. There are currently 13 Generative AI unicorns
(see chart below), according to CBInsights which
said they attained their unicorn status nearly twice as fast as the average $1
billion startup.
Across the 13 Generative AI unicorns, the average time to reach
unicorn status was 3.6 years but for the unicorn club as a
whole the average is 7 years almost twice as long.
OpenAI, the poster child for Generative AI with its Chat GPT
app, tops the list with a valuation of almost $30 billion. Microsoft is the
largest investor as it provided OpenAI with a $1 billion investment in 2019 and
a $10 billion investment in 2023. Bloomberg reported that the company recently
closed an investment fund, exceeding expectations with a value that surpasses
$175 million.
.
..
However, OpenAI may have a formidable competitor in Google
DeepMind (more details below).
.
..
Anthropic is #2 with a valuation of $4.4B. Its
an AI safety and research company based in San Francisco, CA. The company says they develop large-scale AI
systems so that we can study their safety properties at the technological
frontier, where new problems are most likely to arise.
We use these insights to create safer, steerable, and more reliable
models, and to generate systems that we deploy externally, like Claude (to be
used with Slack).
In Q1-2023, Generative AI companies accounted for three of
the entrants to the unicorn club with Anthropic, Adept, and Character.AI
all gaining valuations of $1B or above.
New Generative AI Unicorns in May:
Ten companies joined the Crunchbase Unicorn Board in
May 2023 double the count for April 2023. Among them were several
AI startups:
l Toronto-based Cohere, a generative AI large language
model developer for enterprises, raised $270 million in its Series C funding.
The funding was led by Inovia Capital valuing the 4-year-old company at $2.2
billion.
l Generative video AI company Runway, based out of New
York, raised a $100 million Series D led by Google. The funding valued the
5-year-old company at $1.5 billion.
l Synthesia, a
UK-based artificial intelligence (AI) startup, has raised about $90 million at
a valuation of $1 billion from a funding round led by venture capital firms
Accel and Nvidia-owned NVentures. "While we weren't actively
looking for new investment, Accel and NVIDIA share our vision for transforming
traditional video production into a digital workflow," said Victor Riparbelli, co-founder and CEO of Synthesia.
.
Google DeepMind:
Alphabet CEO Sundar Pichai said in a blog post, weve
been an AI-first company since 2016, because we see AI as the most significant
way to deliver on our mission.
In April, Alphabet Inc. created Google DeepMind, in order to bring together two leading research groups in
the AI field: the Brain team from Google Research, and DeepMind (the
AI startup Google acquired in 2014). Their collective accomplishments in AI
over the last decade span AlphaGo, Transformers, word2vec, WaveNet,
AlphaFold, sequence to sequence models, distillation,
deep reinforcement learning, and distributed systems and software frameworks
like TensorFlow and JAX for expressing, training and
deploying large scale Machine Learning (ML) models.
By launching DeepMind as Google's Generative AI
solution, there could be a new battle
front opening in quantum computing, machine learning perception, gaming and
mobile systems, NLP and human-computer interaction and visualization.
A recent DeepMind
paper says the Alphabet unit has extended AI capabilities with faster
sorting algorithms to create ordered lists.
Their paper says it shows how artificial intelligence can go beyond the
current state of the art, because ultimately AlphaDevs sorts use fewer lines of code for sorting
sequences with between three elements and eight elements for every number of
elements except four. And these shorter algorithms do indeed lead to lower
latency, the paper points out, as the algorithm length and latency are
correlated.
Their researchers created a program based on DeepMinds AlphaZero program, which beat the worlds best
players in chess and Go. That program trained solely
by playing games against itself, getting better and better using a kind of massively automated trial-and-error that eventually
determines the most optimal approach.
DeepMinds researchers modified into
a new coding-oriented program called AlphaDev,
calling this an important next step. With AlphaDev,
we show how this model can transfer from games to scientific challenges, and
from simulations to real-world applications, they wrote on the DeepMind blog. The
newly-discovered sorting algorithms
contain new sequences of instructions that save a single instruction each time
theyre applied. AlphaDev skips over a step to
connect items in a way that looks like a mistake but is actually
a shortcut.
.
Conclusions:
While many luminaries, such as Henry Kissinger, Eric Schmidt
and Daniel Huttenlocher, have lauded Generative
AI as the greatest invention since the printing press, the technology has
yet to prove itself worthy of the enormous praise. Their central thesis, that a computer program
could transform the human cognitive process in a way tantamount to the
Enlightenment, is a huge stretch.
Gary Marcus, a
well-known professor and frequent critic of A.I. technology, said that OpenAI
hasnt been transparent about the data its uses to
develop its systems. He expressed doubt in CEO Sam Altmans prediction that new
jobs will replace those killed off by A.I.
We have unprecedented opportunities here
but we are also facing a perfect storm of corporate irresponsibility,
widespread deployment, lack of adequate regulation and inherent unreliability,
Dr. Marcus said.
The promise and potential of Generative AI will not be
realized for many years.
Think of it as a research work in progress with many twists and turns along the way.
.
The Curmudgeon
ajwdct@gmail.com
Follow the Curmudgeon on Twitter @ajwdct247
Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.
Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.
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