(Bloomberg) – In the quiet days before Christmas last year, when most venture capitalists had retreated to vacation getaways in Aspen or Jackson Hole, the investment team at Lightspeed Venture Partners was contemplating an offering for a rival rival piece from OpenAi.
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The venture capital firm approached Anthrope with an offer to lead a multibillion-dollar investment, according to a person familiar with the matter. A deal quickly took shape: a $2 billion funding round at a valuation of $60 billion, tripling what the startup was worth a year earlier. In early January, the agreement was effectively made.
With $25 billion under management, LightSpeed is part of a rarefied stratum of venture capital firms willing and able to back Tech’s hottest and most expensive companies. In addition to Anthrope, LightSpeed has recently participated in a large funding round for artificial intelligence company Databricks Inc. that valued it at $62 billion, as well as an investment in Elon Musk’s XAI with a valuation of $50 billion.
AI megadeals have become a staple of the top-tier venture capital diet despite risks, including that companies have not yet proven they can profit from these investments.
“It’s high-stakes poker,” said Sierra Ventures managing partner Tim Guleri, an AI investor.
In the last three months alone, Xai, Openai, and Anthrope have raised more than $20 billion to support their heavy computing costs. Those deals collectively valued the three companies at more than $250 billion. In total, US AI startups raised a record $97 billion in 2024, according to Pitchbook data.
For venture capitalists, there is growing pressure, particularly on those who missed the opportunity to back major AI companies at lower prices, to align themselves with the major players before it is too late, investors said. Representatives for Lightspeed and Anthrope declined to comment for this story.
“It shows you’re in the game,” said Peter Werner, co-chair of Cooley’s venture capital practice group. “What you don’t want to be is a venture fund that’s trying to get in the mix, miss out, or develop a reputation that you’re not nimble enough to get into the best and most popular rounds.”
you change
Lightspeed was founded more than 20 years ago after the bust of Barry Eggers, Christopher Schaepe, Peter Nieh and Ravi Mhatre, who led the anthropic negotiations. It is best known for savvy investments in consumer technology, fintech and enterprise software, making early bets on companies such as Snap Inc., Affirm Holdings Inc. and Rubrik Inc. Despite its track record, the company has yet to become a household name as familiar as some of the most famous tier one VC players. With their aggressive AI bets, experts say these deals could permanently elevate their position, if successful.
Like much of the VC industry, LightSpeed has redirected its attention toward AI startups, backing early-stage companies like music company Suno Inc. and video startup Pika, in addition to gamers. bigger. In December, it split with its two main consumer investors and said it was adjusting its consumer investment strategy to better fit the “age of AI.”
In total, LightSpeed has already invested $2.2 billion in AI deals, a figure that does not include its latest anthropic investment, according to another person familiar with the matter. Soon, you’ll have additional firepower to throw at cash-starved companies. It is nearing the end of a fundraising effort that is expected to bring in $7 billion, a person familiar with the matter said. A Lightspeed spokesman declined to comment on the fundraising. Information was previously reported on fundraising efforts.
The company’s anthropogenic investment is one of its most ambitious yet. And while the $60 billion valuation may seem wild, Lightspeed partners hope the deal will one day look like a bargain.
“On the whole, it looks like valuations are expensive because we’re seeing a lot of activity and a lot of deals being done,” Lightspeed partner Guru Chahal said at a Fortune Brainstorm Tech Conference last year. “When you look back, each round, at the time, seemed incredibly expensive, and in hindsight it was incredibly cheap.”
Big AI deals continue to be a source of debate in Silicon Valley. While the biggest companies may be the most transformative, some venture capitalists argue that engaging in huge funding rounds won’t produce the returns tech investors need to satisfy their backers. Those investors are targeting smaller AI applications and services, rather than giants like Anthrope and OpenAI, which are dedicated to developing the industry’s expensive building blocks.
The recent proliferation of AI megadeals also speaks to a broader shift in VC: a departure from the traditional strategy of early-stage investments, where companies take larger stakes at lower valuations. Now, venture capital firms are paying a hefty premium, betting that a small number of AI companies could be worth more than $1 trillion.
The growing size of VC funds has also required companies to write larger checks, Weber said. Instead of targeting massive multiples on their investment, companies “aren’t necessarily trying to find home runs, they’re trying to find ways to double their money,” he said.
“There are just a lot of iconic, generational pre-OPO companies today,” said IVP General Partner Ajay Vashee. “If your mandate is to invest at that stage, then you need to find opportunities to put your capital to work.”
Shaky start
The race to find those opportunities is fraught with risk, including regulatory uncertainty, fierce competition, and high infrastructure costs for leading AI developers.
Investors fear their AI bets will fall short, leaving companies exposed if the bubble bursts. The sector has already seen some billion-dollar companies stumble.
For example, LightSpeed co-led a high-profile investment in Stability AI, the developer of the stable image generator spread that was valued at $1 billion in 2022. Shortly after, several key developers resigned from the business in amid growing tensions with Mercurial Official CEO Emad Mostaque, lawsuits and financial difficulties. Mosta resigned from the company in early 2024. The company has appointed a new CEO and raised additional capital, Bloomberg reported.
Lightspeed is also a big investor in Mistral, the Paris-based open source company that now competes against a number of better-funded language models.
Of course, Lightspeed and other top VC firms hope that placing multiple bets on competing companies will generate at least one big AI winner. If not, the consequences could be significant.
“You can’t miss too many games of this high-stakes poker,” said Guleri of Sierra Ventures. “That’s the risk of the strategy.”
