April 15, 2024

Inside AI Unicorn Anthropic’s unusual $750 million fundraising

The Menlo Ventures-led startup’s new round surprised some industry insiders because of its form (a special purpose vehicle) and its function: helping, in part, price bets by giants Amazon and Google .

By Alex Konrad and David JeansForbes Staff

W.While artificial intelligence startup OpenAI reportedly ended the year discussing a fundraising at a valuation of $100 billion or more, one of its main rivals, Anthropic, was accepting its own round. Looking almost modest by comparison, Anthropic was raising $750 million in new financing that would nearly quadruple its valuation to $18.4 billion.

New details from the unusual round, which is still ongoing, reveal how lead investor Menlo Ventures used an increasingly popular tactic to jump to the front: a special purpose vehicle, or SPV. The push to make the round, according to multiple sources, came from an opportunistic Menlo looking to double down on a position in one of the top AI unicorns ahead of a potential larger round later in 2024, once Anthropic’s revenue had increased. . For a previously small shareholder, it was a power play. For Anthropic, an easy way to burnish its war chest amid a rush for hiring and products.

Anthropic had not planned to raise a round in late 2023: The startup had previously indicated to interested investors that it preferred to wait until the second half of 2024 to make a formal fundraising effort, according to four people with knowledge. of process. But Menlo’s offer made sense: The company got a cash infusion at a critical time with minimal fuss, while also formalizing terms for two others promised by key cloud computing partners, Amazon and Google.

Some investors were caught off guard by Menlo’s aggressive move. “We complained to the company, but the company has a lot of demand for the product,” said an existing investor. “And they apologized because they don’t have time.”

On Tuesday, Menlo Ventures disclosed the SPV, called Menlo Inflection AI Partners, in a regulatory filing, saying the company planned to raise $500 million for the round. The additional $250 million comes from Menlo’s own funds and contributions from insiders, a source with knowledge confirmed. It is also expected to include a proration for investors who hold such rights, including, one source said, Spark Capital, the venture fund with the sole seat on Anthropic’s board. Other shares are intended for Anthropic employees, according to two sources.

“Most companies can’t write a check that big. Maybe in previous years you had SoftBank, but that store closed.”

Anthropic declined to comment in response to detailed questions about the round. Menlo Ventures and Spark Capital declined to comment. The Information previously reported the first word of the round, while Semafor reported the use of an SPV.

The origins of Anthropic, known for the large and challenging ChatGPT Claude 2 language model, are under investigation; According to multiple sources, Amodei is not known to enjoy fundraising (although perhaps few founders do). One of Anthropic’s technical leaders told investors that outsourcing fundraising to Menlo had given them more time to code, one source said. “It’s about saving time,” added the person, who was not authorized to speak. “Here’s the incoming interest that can run a round at a threshold that’s interesting and figure out the rest later.”

Do you have advice? Contact reporters Alex Konrad at akonrad@forbes.com and David Jeans at djeans@forbes.com or 347-559-5443 on Signal.

According to several peers, Menlo’s aggressive move seemed like an opportunity to partner more closely with Anthropic at a stage when it otherwise couldn’t serve as a power broker. While AI has become a stated focus area of ​​the company’s most recent funds, venture capital firms typically cannot invest more than 10% or 15% of a fund in a single company. Given the size of Menlo’s most recent funding (it announced funding totaling $1.35 billion in November), it wouldn’t have been able to invest a $750 million round on its own. But by using an SPV, Menlo could invest as much as it wanted and then funnel the opportunity to its own limited partner investors and other allies.

Menlo also further benefits from the financial advantages of those investments it secured through fees and accrued interest. SPVs often include preferential terms for a VC’s own backers, and one source said Forbes that is the expectation with the Anthropic round. On the other hand, other investors without ‘pro rata’ legal rights to insist on inclusion in the round would be forced to turn to Menlo if they wanted to invest, which may be impossible as some companies cannot invest in another’s SPV.

Menlo is not the first company to turn to SPVs for later-stage deals: Thrive Capital has reportedly employed the vehicles for several deals, including a recent public offering of OpenAI. But as a primary test in a new equity round, not a secondary sale, the tactic still surprises some. An investor with knowledge of the Anthropic round argued that the use of an SPV is increasingly necessary as startups raise massive funding rounds. “Most companies can’t write a check that big,” the source said. “Maybe in previous years you had SoftBank, but that store closed.”

For Anthropic, the most immediate benefit is quick money. Anthropic employed about 300 people according to a December report; The company is currently looking to increase headcount by around 20%, with just under 60 vacancies available on its website, including nine in engineering and 10 in research. While sales projections have increased rapidly in recent months, two sources said, much of that revenue remains unrealized. Waiting to raise additional funds later could lead to more favorable terms for the company, said the founder of another AI unicorn, who asked to remain anonymous.

Then there’s the matter of Anthropic’s deals with Amazon and Google, both of which pledged in the fall to invest billions in the company. In September, cloud giant Amazon announced a partnership with Anthropic that included an investment of up to $4 billion; The following month, Google, which had previously invested in Anthropic’s $450 million funding round in May 2023, pledged another $2 billion.

Google’s investment is simple: a first part or tranche of $500 million revealed is already in the hands of Anthropic and becomes the round led by Menlo. Two additional tranches of $750 million will be invested at time intervals independent of milestones or stock prices, a source with knowledge said. Google did not respond to several requests for comment.

Amazon’s investment, revealed in a quarterly filing, included $1.25 billion deployed in September in the form of a convertible note that converts into this round. Amazon too “[has] an agreement,” the company wrote, to invest up to $2.75 billion in a second note that would expire in the first quarter of 2024. A source with knowledge explained that Anthropic and Amazon must decide by March 29, the last business day of the first quarter. – to activate the second largest note, which would then be converted into a future financing round.

At the same time, Amazon Web Services signed a partnership with Anthropic through which the AI ​​startup promised to make the cloud leader its primary supplier for future model development, as well as make those models available to AWS customers.

Additionally, Anthropic is committing to spending a certain amount over five years with AWS as part of the deal, a source with knowledge said. Amazon referred reporters to its most recent 10-Q filing, which noted: “We also have a commercial agreement primarily for the supply of AWS chips and cloud services.” The company declined to comment further.


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