(Bloomberg) — In the quiet days before Christmas last year, when most venture capitalists retreated to holiday retreats in Aspen or Jackson Hole, Lightspeed Venture Partners’ investment team was considering a bid for a piece of OpenAI competitor Anthropic.
Most read from Bloomberg
The venture capital firm approached Anthropic and offered 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 valuation of $60 billion, triple the value of the startup a year earlier. By early January, the deal was effectively completed.
With $25 billion under management, Lightspeed is part of a rarefied stratum of venture capital firms willing and able to back the hottest, most expensive companies in technology. In addition to Anthropic, Lightspeed recently participated in a large funding round for Databricks Inc. for artificial intelligence, which was valued at $62 billion, in addition to an investment in Elon Musk’s XAI at a valuation of $50 billion.
Mega AI deals have become a staple in the diet of top-tier venture capital despite risks, including that companies have yet to prove they can benefit from these investments.
“It’s a high-stakes poker game,” said Tim Gullery, managing partner at Sierra Ventures, an AI investor.
In the past three months alone, xAI, OpenAI, and Anthropic have raised more than $20 billion to support skyrocketing computing costs. Together, these deals valued the three companies at more than $250 billion. In all, US AI startups raised a record $97 billion in 2024, according to PitchBook data.
For venture capitalists, there is growing pressure — especially on those who missed out on the opportunity to back big AI companies at lower prices — to join the major 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-chair of Cooley’s venture capital practice group. “What you don’t want is to be a venture fund that’s trying to be in the mix, miss out or gain a reputation of not being smart enough to get to the best, hottest rounds.”
VC transformation
Lightspeed was founded more than 20 years ago in the wake of the dot-com bust by Barry Eggers, Christopher Shipp, Peter Neeh, and Ravi Mhatre, who led the humanitarian negotiations. It is known for its smart investments in consumer technology, fintech and enterprise software, making early bets on companies like Snap Inc. and Afirm Holdings Inc. and Rubrik Inc. Despite its track record, the company has yet to become a household name as a top-tier VC player. Thanks to its aggressive bets on AI, insiders say these deals could permanently raise its profile — if successful.
Like much of the venture capital industry, Lightspeed has redirected its attention toward AI startups, backing early-stage companies like music company Suno Inc. and video startup Pika, as well as larger companies. In December, it parted ways with two major consumer investors and said it was adjusting its consumer investing strategy to better fit the “age of artificial intelligence.”
In total, Lightspeed has already invested $2.2 billion in AI deals, a figure that does not include its most recent humanitarian investments, according to another person familiar with the matter. Soon it will have extra firepower to throw at cash-starved companies. A person familiar with the matter said the fundraising was nearing the end, expected to bring in $7 billion. A Lightspeed spokesperson declined to comment on the fundraising process. Information was reported earlier about fundraising efforts.
The company’s humanitarian investment is one of its most ambitious to date. Although a value of $60 billion may seem very high, Lightspeed’s partners hope that one day the deal will feel like a bargain.
“Overall, it looks like valuations are expensive because we’re seeing a lot of activity and a lot of deals getting done,” Lightspeed partner Guru Chahal said at the Fortune Brainstorm Tech Conference last year. “When you look back, every tour, at the time, seemed incredibly expensive, and in the past, it seemed incredibly inexpensive.”
Big AI deals remain a source of debate in Silicon Valley. While the largest companies are the most transformative, some venture capitalists argue that participating in massive funding rounds will not deliver the returns that technology investors need to satisfy their backers. These investors are targeting smaller AI applications and services, rather than giant companies like Anthropic and OpenAI, which are engaged in developing the building blocks of this expensive industry.
The recent proliferation of mega AI deals also signals a broader shift in venture capital: a departure from the traditional strategy of early-stage investments, where companies acquire larger stakes at lower valuations. Now, venture capital firms are paying a big premium, betting that a small number of AI companies could eventually be worth more than $1 trillion.
The growing size of venture capital funds also requires companies to write larger checks, Weber said. Rather than aiming for huge multiples on their investments, he said, companies “are not necessarily trying to find local sources of income, but rather trying to find ways to double their money.”
“There are only so many iconic pre-IPO companies for pre-IPO generations,” said Ajay Vashi, general partner at IVP. “If your mission is to invest at that point, you have to find opportunities to put your capital to work.”
Shaky start
The race to find these opportunities is fraught with risks, including regulatory uncertainty, fierce competition, and rising infrastructure costs for major AI developers.
Investors fear their AI bets will fail, leaving companies vulnerable if the bubble bursts. The sector has already seen some multi-billion dollar companies falter.
For example, Lightspeed co-led a high-profile investment in Stability AI, the developer of the Stable Diffusion image generator that was valued at $1 billion in 2022. Soon after, several key developers quit the business amid mounting tensions with the volatile CEO. Officer Imad Mustafa, lawsuits and financial difficulties. Mustak resigned from the company in early 2024. The company has since appointed a new CEO and raised additional capital, Bloomberg reported.
Lightspeed is also a major investor in Mistral, a Paris-based open source company that is now competing against a slew of better-funded language models.
Of course, Lightspeed and other major venture capital firms hope that placing several bets on competing companies will lead to at least one major AI winner. If not, the repercussions could be significant.
“You can’t lose too many games in this high-stakes game of poker,” said Guleri of Sierra Ventures. “This is the risk of the strategy.”
