Google Invests Heavily in AI Firm Anthropic, Secures Cloud Agreement
Google has made a firm commitment to invest $2 billion in Anthropic, an artificial intelligence company, further strengthening its ties with the highly regarded startup and fueling the AI craze in Silicon Valley.
The deal is structured as a convertible bond, a type of debt that will be converted into equity in the startup’s next funding round, an Anthropic spokesperson confirmed. The deal closely follows another major convertible bond investment in Anthropic from Amazon.com Inc for up to $4 billion earlier this year.
In the latest funding, Alphabet Inc’s Google invested $500 million and committed to adding $1.5 billion more in the future, according to people familiar with the matter, who asked not to be identified because the information is private. The investment is on top of Google’s $550 million investment in Anthropic earlier this year.
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Before the funding, Google also signed a major cloud deal with Anthropic, according to a person familiar with the details. The cloud deal, in which Anthropic uses Google’s computing services, was even bigger than the latest investment and will continue for several years, the person said.
The Wall Street Journal previously reported the details of Google’s investment.
Megadeals
Anthropic’s dealmaking flow this year has been led in part by a new hire, Vu Bui, its director of strategic finance and investor relations, who started in September, according to his LinkedIn profile. Bui has been instrumental in orchestrating the company’s talks with investors, one of the people said.
The next step for Anthropic may be to raise traditional financing instead of convertible debt. At that point, the shares of both Google and Amazon will be converted into equity and the company will receive a new value. Anthropic had discussed a valuation of $20 billion to $30 billion, a price tag that some investors said was too high, the people said. Earlier this year, the startup was valued at around $5 billion, according to PitchBook.
However, the company is unlikely to rush to raise more money because its recent investments from Google and Amazon have meant it has plenty of cash, the people said.
Competitors of the clouds
For both Google and Amazon, investing in startups like Anthropic is a way to strengthen relationships with companies shaping the next wave of AI and encourage them to use their own cloud tools. If artificial intelligence becomes ubiquitous, as some experts predict, it will require massive computing resources. This means that AI companies will be profitable cloud customers in the future.
Google’s ties to Anthropic put it in an unusual partnership with Amazon, its rival in cloud services. While Google has a big cloud deal with the startup, Amazon also said as part of its investment that it will be Anthropic’s “preferred cloud provider.”
The relationship between Google, Amazon and Anthropic has been rocky at times. Google knew this summer that Anthropic was looking to raise more money, according to one person familiar with the matter. But details about the startup’s Amazon Web Services came as a surprise to some at the search giant, according to him and two other people familiar with the matter.
Anthropic operates primarily on a combination of its own servers and computing power leased from Google Cloud Platform, one of the people said. Google, which had already invested millions in Anthropic, was reluctant to commit to the amount Amazon ended up investing.
Amazon said in its filing that it had invested $1.25 billion in Anthropic in the form of a convertible note and may invest $2.75 billion more in another note that matures in the first quarter of next year. Amazon also has an agreement with Anthropic, where the startup uses AWS cloud services and chips. The debt structure of the Google and Amazon deals has not been previously reported.
The deals pit the two tech giants against Microsoft Corp., which is investing more than $10 billion in Anthropic rival OpenAI. Both OpenAI and Anthropic build chatbots with generative AI technology that can generate content in response to prompts. Anthropic’s chatbot Claude has paid special attention to responsible artificial intelligence and reducing technology bias.
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