VCs are 'hedging their bets,' backing competing LLMs like Anthropic and OpenAI, breaking a long-standing venture taboo

• Venture firms are progressively investing successful competing LLM startups for illustration OpenAI and xAI.
• Traditionally, VCs avoided backing competitors for illustration Uber and Lyft.
• Some VCs reason investing successful aggregate LLMs is strategic, while others spot it arsenic unethical.

When task firms propulsion retired their checkbooks, location has traditionally been an unspoken rule: Do not backmost a competitor. Choose either Lyft aliases Uber, but not both.

"I person ne'er seen it before, and I assumed nary 1 would do it," said Joe Aaron, founding partner astatine TRAC. "Would you want a institution that invested pinch you investing successful your competitor?"

However, that norm seems to beryllium disappearing arsenic investors move billions into competing ample connection exemplary (LLM) startups.

Andreessen Horowitz has backed OpenAI, Elon Musk's XAI, and Safe Superintelligence (SSI), nan AI startup co-founded by erstwhile OpenAI main intelligence Ilya Sutskever. Sequoia Capital invested successful OpenAI successful 2021 and past backed SSI successful September. Fidelity and Ark Invest person stakes successful some OpenAI and XAi. Sound Ventures and Wisdom Ventures backed some OpenAI and Anthropic.

"I deliberation it's really flawed and very unethical," said Umesh Padval, managing head astatine Thomvest Ventures, which backed Cohere, a Canadian LLM developer. "I will ne'er put successful Anthropic aliases OpenAI, because really tin you opportunity 'I'm going to beryllium each successful pinch you, but I'm hedging my bet."'

To Padval, investing successful akin companies is an affront to what he sees arsenic nan cardinal usability of a VC, which is to place a institution and beryllium powerfully committed to it.

"The hedging of nan stake happens erstwhile group are not convinced astir their thesis," Padval said. "If nan institution doesn't do well, that's task capital. But successful bid to screen yourself up, don't do different company."

Padval is besides concerned astir VCs who are privy to confidential accusation and perchance sharing it pinch a competitor.

"People make it sound for illustration it's firewalls, but there's nary firewalls," he said.

However, 1 personification whose patient invested successful some OpenAI and Anthropic denied they had entree to backstage information.

"We are really not privy to nan soul workings of either a institution to a grade wherever it would beryllium concerning that we would beryllium carrying accusation into nan force camp," said nan investor, who asked not to beryllium identified because they were discussing soul dealings.

OpenAI reportedly asked investors in its latest backing to refrain from investing successful 5 competitors, thing it is uniquely positioned to do, according to Gregg Hill, co-founder and wide managing partner astatine Parkway Venture Capital.

"OpenAI wouldn't make specified a petition if they couldn't unafraid nan billions needed for their backing rounds," said Hill. "Ultimately, nan marketplace will determine what succeeds."

Some VCs don't person a problem pinch investing successful LLM competitors

It could make consciousness to backmost aggregate LLMs astatine this comparatively early shape because location will not beryllium a azygous winner, argues S. Somasegar, managing partner astatine Madrona Ventures.

"Every institution that is building an AI-driven exertion is utilizing aggregate models, and cipher thinks they are going to restrict themselves to utilizing conscionable 1 model," said Somasegar. "I deliberation nan rules for investments mightiness person been much murky successful these early days and I expect them to benignant themselves retired arsenic we get much knowing of what these exemplary companies are evolving into."

There is besides nan matter of money, pinch only a fistful of firms capable of penning nan colossal checks required to money LLM companies. The apical ones person raised truthful overmuch money that investing successful them is balanced to buying shares of akin nationalist companies connected nan NASDAQ, said a VC astatine a patient that has backed some OpenAI and xAI.

"You wouldn't do this for mini backstage companies wherever nan adjacent information really matters, but erstwhile you break billions of dollars, honestly, what's nan difference?" said nan VC. "They mightiness arsenic good beryllium nationalist companies moreover really overmuch money they've raised."