(Bloomberg) — In the quiet days before Christmas last year, when most venture capitalists retreated to Aspen or Jackson Hole for vacation, the investment team at Lightspeed Venture Partners considered an offer for a piece of OpenAI competitor Anthropic.
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The venture capital firm approached Anthropic with an offer to lead the multibillion-dollar investment, according to a person familiar with the matter. The deal quickly took shape: a $2 billion funding round at a $60 billion valuation, tripling the startup’s value a year earlier. At the beginning of January, the deal was actually concluded.
With $25 billion under management, Lightspeed is part of a rarefied echelon of VC firms willing and able to back the hottest and most expensive tech companies. Along with Anthropic, Lightspeed recently participated in a large funding round for artificial intelligence company Databricks Inc. which valued it at $62 billion, as well as Elon Musk’s investment in xAI at $50 billion.
AI megadeals have become a staple of the high-end VC diet despite the risks, including that companies have yet to prove 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 Anthropic have raised more than $20 billion to cover their hefty computing costs. Those deals together valued the three companies at more than $250 billion. Overall, US AI startups have raised a record $97 billion in 2024, according to PitchBook.
There is increasing pressure for venture capital investors – especially those who missed out on the chance to back cutting-edge AI companies at lower prices – to join the leading players before it’s too late, investors say. Representatives for Lightspeed and Anthropic declined to comment for this story.
“It shows you’re in the game,” said Peter Werner, co-chairman of Cooley’s venture capital practice group. “What you don’t want to be is a hedge fund trying to be in the mix, missing out or developing a reputation that you’re not nimble enough to get into the best and hottest circles.”
VC Shift
Lightspeed was founded by Barry Eggers, Christopher Schaepe, Peter Nieh and Ravi Mhatre, who led negotiations with Anthropica, more than 20 years ago after the dot-com crash. It is best known for smart investments in consumer technology, fintech and business software, 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 some of the most well-known tier 1 VC players. Along with aggressive bets on artificial intelligence, insiders say these deals could permanently improve its position — if they succeed.
Like much of the VC industry, Lightspeed has turned its attention to AI startups, backing early-stage companies such as music company Suno Inc. and video startup Pika, alongside bigger players. In December, it parted ways with its two top consumer investors and said it was adjusting its consumer investment strategy to better suit the “age of artificial intelligence.”
In total, Lightspeed has already invested $2.2 billion in AI businesses, a figure that does not include the latest investment in Anthropic, according to another person familiar with the matter. They will soon have additional firepower against cash-hungry companies. A fundraising effort expected to bring in $7 billion is nearing completion, a person familiar with the matter said. A spokesman for Lightspeed declined to comment on the fundraising. The Information previously reported on the fundraising efforts.
The company’s investment in Anthropic is one of its most ambitious to date. And while a valuation of $60 billion may seem incredibly high, Lightspeed’s partners hope the deal will one day look like a bargain.
“Overall, valuations appear to be expensive because we’re seeing a lot of activity and a lot of deals being done,” Lightspeed Partner Guru Chahal said at last year’s Fortune Brainstorm Tech conference. “When you look back, each round seemed incredibly expensive at the time and, in retrospect, was incredibly cheap.”
Big AI deals continue to be a source of debate in Silicon Valley. Although the largest companies are seen as the most transformative, some venture capitalists argue that participating in large funding rounds will not produce the returns that tech investors need to satisfy their backers. These investors are targeting smaller AI applications and services, rather than giants such as Anthropic and OpenAI, which develop expensive components of the industry.
The recent proliferation of AI megadeals also speaks to a broader shift in VC: a departure from the traditional early-stage investment strategy, where companies acquire larger stakes at lower valuations. Now, VC firms are paying a huge premium and betting that a small number of AI companies could eventually be worth more than a trillion dollars.
The increasing size of VC funds also required companies to write bigger checks, Weber said. Instead of aiming for huge multiples of their investments, companies are “not necessarily trying to find home runs, they’re trying to find ways to double their money,” he said.
“There are only so many iconic, generational pre-IPO companies today,” said IVP General Partner Ajay Vashee. “If your mandate is to invest at that stage, then you have to find opportunities to put your capital to work.”
A shaky start
The race to find those opportunities is fraught with risks, including regulatory uncertainty, fierce competition and rising infrastructure costs for leading AI developers.
Investors fear their bets on artificial intelligence could fail, leaving companies exposed if the bubble bursts. Some companies worth billions of dollars have already failed in this sector.
For example, Lightspeed participated in a high-profile investment in Stability AI, the developer of the Stable Diffusion image generator that is valued at $1 billion in 2022. Soon after, several key developers resigned from their jobs due to growing tensions with Mercurial CEO Cop Emad Mostaque, lawsuits and financial difficulties. Mostaque resigned from the company in early 2024. The company has since named a new CEO and raised additional capital, Bloomberg reported.
Lightspeed is also a major investor in Mistral, a Paris-based open source company that now competes with a number of better-funded language models.
Of course, Lightspeed and other top VC firms are hoping that placing a few bets on competing companies will yield at least one big AI winner. If not, the consequences could be significant.
“You can’t lose too many games of this high-stakes poker,” said Sierra Ventures’ Guleri. “That’s the risk of strategy.”
