Artificial intelligence startups raised billions of dollars last year, aiming to become winners in the latest tech-driven boom. Now many are struggling to survive—and asking Silicon Valley’s biggest companies to bail them out. At least three once-hot AI startups have been rescued via a new type of deal that many in the tech industry say are acquisitions in everything but name. These deals have the advantage of skirting the typical regulatory process at a time when big tech’s growing control over generative AI is being scrutinized by governments. On Friday, Character.AI announced a deal for Google to use its technology and hire many of its researchers and executives, including its co-founders Noam Shazeer and Daniel De Freitas. Google negotiated a licensing fee worth $2 billion for the startup’s technology to help buy out early investors, people familiar with the matter said. The two companies considered an outright acquisition, but concluded that was unlikely to get past regulators, according to a person familiar with the matter. In June, Adept AI struck a deal in which Amazon agreed to hire most of the startup’s employees and paying about $330 million to license its technology, according to people with knowledge of the arrangement. That was enough, along with Adept’s remaining cash, to pay back investors, but a disappointing turn for a company that just last year was valued at $1 billion. Microsoft cast the mold for this deal type in March when it hired nearly all the employees from AI developer Inflection to start a new consumer AI division and paid around $650 million to license its technology. More exits—either pseudo-acquisitions or real ones—are coming, investors say, as a bubble built by the excitement around generative AI is showing signs of peaking. Creating the large-language models that power generative AI often requires hundreds of millions of dollars in upfront investment before returning a cent of revenue.
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