Microsoft Delivers a ‘Favorable Outcome’ for Inflection AI Venture Capitalists, Fulfilling Reid Hoffman’s Pledge

The big cloud vendors have all already lined up with other chatbot partners: Microsoft with OpenAI, Google and Amazon with Anthropic; Cohere picking up assorted others like Oracle and Salesforce. If and when Inflection ever perfected Pi on its enormous AI infrastructure, the race looked to be already lost. Despite close ties with OpenAI, Microsoft also has many reasons to be needing a backup for it’s all-important AI gambit. There are so many red flags with OpenAI that Microsoft is wise to wean its dependence. Then again, just like Microsoft’s investment in OpenAI, we wonder if regulators will also have something to say about this deal.

According to unnamed sources, Microsoft is said to be paying approximately $650 million as part of its deal to acquire Inflection AI, a company founded in 2022 and aspiring to compete with OpenAI. While Microsoft has declined to comment, it is rumored that $620 million will go towards non-exclusive licensing fees for Inflection’s technology, with an additional $30 million being paid to settle any potential legal disputes from Microsoft’s poaching of co-founders Mustafa Suleyman and Karén Simonyan. As stated by Microsoft board member Reid Hoffman, all investors of Inflection can expect a positive outcome from this deal, as the company pivots towards a new direction focused on providing AI services to other companies.

“That all of Inflection’s investors will have a good outcome today, and I anticipate good future upside.”

– Reid Hoffman
  • Investors from the early $225 million round will receive 1.5 times their investment
  • Investors from the later $1.3 billion round will receive 1.1 times their investment
  • While this math may not add up to $650 million, these investors will also retain their equity in the remaining company, which will be shifting towards offering AI services to other companies

Despite its short lifespan, Inflection was able to raise over a billion dollars at a $4 billion valuation. Investors included Microsoft co-founder Bill Gates, former Google CEO Eric Schmidt, and Nvidia, among others. However, with Microsoft’s acquisition, the company’s expensive and potentially unfruitful AI venture will now come to an end.

The new company, led by the founder and technical geniuses behind Google DeepMind, will have invaluable experience in the LLM and AI space. Co-founder Karén Simonyan, for instance, played a critical role in developing AlphaZero, the AI that mastered the board game Go.

“Interestingly, the money Microsoft is spending to acquire and absorb this startup may be worth it.”

– Author

While Microsoft has a partnership with OpenAI, it is smart for the company to have a backup plan. This is particularly relevant as the FTC has announced its investigation into various AI partnerships, including Microsoft’s deal with OpenAI. Additionally, there have been reported tensions between Microsoft and OpenAI engineers. With the acquisition of Inflection and its expertise, Microsoft can potentially lessen its dependence on OpenAI.

However, just like Microsoft’s investment in OpenAI, there may be regulatory implications for this deal as well, considering the company’s history and recent controversies, such as the Sam Altman firing saga. Only time will tell if this acquisition will ultimately prove to be a wise move for Microsoft.

– Author
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Kira Kim

Kira Kim is a science journalist with a background in biology and a passion for environmental issues. She is known for her clear and concise writing, as well as her ability to bring complex scientific concepts to life for a general audience.

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