(Bloomberg) — Within the quiet days earlier than Christmas final yr, when most enterprise capitalists had retreated to vacation escapes in Aspen or Jackson Gap, Lightspeed Enterprise Companions’ investing group was considering a bid for a bit of OpenAI rival Anthropic.
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The enterprise capital agency approached Anthropic with a suggestion to steer a multibillion-dollar funding, in line with an individual aware of the matter. An settlement shortly took form: a $2 billion funding spherical at a $60 billion valuation, tripling what the startup was price a yr earlier. By early January, the deal was successfully executed.
With $25 billion below administration, Lightspeed is a part of a rarified strata of VC companies keen and in a position to again tech’s hottest, and costliest, firms. Along with Anthropic, Lightspeed has just lately participated in a big funding spherical for synthetic intelligence firm Databricks Inc. that valued it at $62 billion, in addition to an funding in Elon Musk’s xAI at a $50 billion valuation.
AI megadeals have turn into a staple of the top-tier VC weight-reduction plan regardless of the dangers, together with that companies haven’t but confirmed they will revenue off these investments.
“It’s high-stakes poker,” mentioned Sierra Ventures Managing Companion Tim Guleri, an AI investor.
Up to now three months alone, xAI, OpenAI and Anthropic have raised greater than $20 billion to assist their hefty computing prices. These offers collectively valued the three firms at greater than $250 billion. Altogether, US AI startups raised a document $97 billion in 2024, in line with PitchBook knowledge.
For enterprise capitalists, there may be rising stress — significantly on people who missed the prospect to again the highest AI firms at decrease costs — to align themselves with the main gamers earlier than it’s too late, buyers mentioned. Representatives for Lightspeed and Anthropic declined to remark for this story.
“It reveals you’re within the recreation,” mentioned Peter Werner, co-chair of Cooley’s enterprise capital observe group. “What you don’t wish to be is a enterprise fund that’s attempting to be within the combine, lacking out or creating a fame that you simply’re not nimble sufficient to get into one of the best and hottest rounds.”
VC Shift
Lightspeed was based greater than 20 years in the past on the heels of the dot-com bust by Barry Eggers, Christopher Schaepe, Peter Nieh and Ravi Mhatre, who led the Anthropic negotiations. It’s greatest identified for savvy investments in shopper expertise, fintech and enterprise software program, making early bets on firms like Snap Inc., Affirm Holdings Inc. and Rubrik Inc. Regardless of its observe document, the agency has but to turn into as a lot of a family title as a few of the most well-known tier one VC gamers. With its aggressive AI bets, insiders say these offers may completely elevate its standing — in the event that they succeed.
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Like a lot of the VC trade, Lightspeed has redirected its consideration towards AI startups, backing early-stage firms such because the music firm Suno Inc. and video startup Pika, along with larger gamers. In December, it parted methods with its two lead shopper buyers and mentioned it was adjusting its shopper investing technique to raised swimsuit the “age of AI.”
In complete, Lightspeed has already invested $2.2 billion in AI offers, a determine that doesn’t embrace its newest Anthropic funding, in line with one other particular person aware of the matter. Quickly, it’s going to have extra firepower to throw on the cash-hungry firms. It’s nearing the tip of a fundraising anticipated to herald $7 billion, an individual aware of the matter mentioned. A spokesperson for Lightspeed declined to touch upon the fundraising. The Data earlier reported on the fundraising efforts.
The agency’s Anthropic funding is considered one of its most bold but. And whereas the $60 billion worth could appear eye-wateringly excessive, Lightspeed’s companions are hopeful the deal will at some point appear like a discount.
“In mixture, it feels just like the valuations are costly as a result of we see quite a lot of exercise and quite a lot of offers getting executed,” mentioned Lightspeed Companion Guru Chahal at a Fortune Brainstorm Tech convention final yr. “Once you look again, each spherical, on the time, appeared extremely costly and, looking back, was extremely cheap.”
Massive AI offers stay a supply of debate in Silicon Valley. Whereas the most important firms stand to be probably the most transformative, some enterprise capitalists argue that collaborating in enormous funding rounds received’t yield the returns tech buyers have to fulfill their backers. These buyers are concentrating on smaller AI apps and providers, fairly than the giants like Anthropic and OpenAI, engaged in creating the expensive constructing blocks of the trade.
The current proliferation of AI megadeals additionally speaks to a broader shift in VC: a departure from the normal technique of early-stage investments, the place companies purchase bigger stakes at decrease valuations. Now, VC companies are paying a significant premium, and betting {that a} small variety of AI firms may finally be price over $1 trillion.
The rising measurement of VC funds has additionally required companies to jot down bigger checks, mentioned Weber. Reasonably than aiming for enormous multiples on their funding, companies are “not essentially looking for residence runs, they’re looking for methods to double their cash,” he mentioned.
“There are solely so many iconic, generational pre-IPO firms on the market right this moment,” IVP Basic Companion Ajay Vashee mentioned. “In case your mandate is to be investing at that stage, then you must discover alternatives to place your capital to work.”
Shaky Begin
The race to search out these alternatives is fraught with dangers, together with regulatory uncertainty, fierce competitors and hovering infrastructure prices for main AI builders.
Traders concern their AI bets could fall brief, leaving companies uncovered if the bubble bursts. Already, the sector has seen some billion-dollar firms stumble.
For instance, Lightspeed co-led a high-profile funding in Stability AI, the developer of the picture generator Steady Diffusion that was valued at $1 billion in 2022. Shortly after, a number of key builders resigned from the enterprise amid rising tensions with mercurial Chief Government Officer Emad Mostaque, lawsuits and monetary difficulties. Mostaque resigned from the corporate in early 2024. The corporate has since appointed a brand new CEO and raised extra capital, Bloomberg reported.
Lightspeed can be a significant investor in Mistral, the Paris-based open-source firm now competing in opposition to a slew of better-funded language fashions.
In fact, Lightspeed and different high VC companies are hopeful that inserting a number of bets in competing firms will yield at the least one main AI winner. If not, the fallout may very well be vital.
“You possibly can’t lose too many video games of this high-stakes poker,” mentioned Sierra Ventures’ Guleri. “That’s the chance of the technique.”
–With help from Katie Roof.
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