Open AI and Anthropic May Be Rivals, but Investors Aren’t Picking Sides | WIRED

Overview

Open AI and Anthropic May Be Rivals, but Investors Aren’t Picking Sides

Open AI and Anthropic have battled for workers, customers, and public attention. The rival AI labs have been on opposite sides of policy proposals, and their CEOs were the only ones not to link hands among a dozen industry leaders at a business summit earlier this year. But they do have one big area of overlap: their investors.

Details

About 90 venture capital firms and other money managers have invested in both Open AI and Anthropic over the past few years, according to a WIRED analysis of data from Pitch Book, a platform that tracks startup investments. Open AI shares about 42 percent of its overall investors with Anthropic, according to the data. Roughly a third of Anthropic investors are also Open AI backers, including major firms like Sequoia Capital, Greylock, Founders Fund, Redpoint Ventures, Emerson Collective, and Sound Ventures.

Just last week, Anthropic made a fundraising announcement that named 31 investors—at least 13 of which have stakes in Open AI, according to the Pitch Book data and WIRED reporting. The number of common investors may be an undercount, because collecting information about private investments is challenging. WIRED identified at least a couple of investors missing from Open AI’s roster in the Pitch Book data, including Amazon.

The amount of overlap is astonishing for two fierce competitors that began their fundraising within a couple of years of one another. Three experts who study the venture capital industry described the commonality as unusual, or even unprecedented. The phenomenon reflects the recent evolution of the venture capital industry, the emergence of two extraordinary companies that have raised unheard-of sums of money, and the wide-open competition among them and others in AI.

“The ownership structure you are seeing right now is a real insight into how sophisticated investors are viewing this market, and the answer seems to be that few are convinced this will be a winner-take-all market, or if it is, who the dominant player will be,” says Tom Nicholas, a Harvard Business School professor and author of VC: An American History.

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The intersection of investors is also notable as Anthropic and Open AI aim to make their stock market debuts this year. Initial public offerings are often a chance for investors to realize gains in their ownership of a startup. But last year, just two-thirds of IPOs attracted a significant pop in value. With bets in both Open AI and Anthropic, investors may be doubling their odds of success.

“Rather than looking at these companies as overlapping technologies, what these large investors are doing is protecting their ability to create returns,” says Kyle Stanford, director of venture capital research at Pitch Book.

Open AI and Anthropic didn’t respond to requests for comment. Several venture capital firms that invested in Open AI and Anthropic also declined or didn’t respond to requests for comment about why they decided to back both.

A few would speak only on the condition of anonymity to avoid jeopardizing industry relationships, and each called the dueling investment opportunities with Open AI and Anthropic unlike any circumstance they had encountered before.

Historically, venture capital firms have concentrated their bets on one company in an area of competition to avoid conflicts of interest, Stanford says. Companies sometimes share proprietary information with investors or lean on them for advice or governance, and having stakes in rivals invites awkward conversations.

But the venture capital industry has evolved as funds have grown larger. Firms are backing larger numbers of startups, and the companies are staying private longer and raising more money than ever before. Open AI and Anthropic each have raised well more than

100 billion at valuations approaching

1 trillion.

So over the past decade, the line between different classes of investment firms have become increasingly blurred. About 30 of the overlapping Anthropic and Open AI investors in the Pitch Book data are identified as hedge funds, private equity firms, or wealth managers that commonly spread their bets. The rest are traditional angel or venture capital firms now following the same strategy.

“Any single investor is going to own such a tiny portion of a company that conflicts are not as big of a concern,” Stanford says. They will be privy to less internal information and have diminished ability to influence a company’s trajectory. “Investors have traditionally wanted to invest in one or the other to make one the winner. These companies are growing so big, that split doesn’t really matter,” Stanford says.

Several of the common investors have also invested in Elon Musk’s AI research lab, x AI. It was bought out this year by Space X, which is expected to hold its own IPO next week.

The closest parallel to the AI investor cross-pollination may come from about a decade ago. Japanese telecom giant Soft Bank invested billions of dollars in ride-hailing companies around the world, some of which had ambitions of competing against one another in certain countries. But in the US, while Soft Bank backed Uber, it didn’t end up investing in Lyft, the main rival.

A representative from one large investor says their firm expects its bets on Open AI and Anthropic to both pay off because demand for AI technologies is widespread. Another describes their stake in one of the companies as too small to be viewed as conflicting with their larger ownership in the other.

A venture capitalist, who has helped wealthy families across the US invest in funds that include Anthropic and Open AI shares, describes AI as a transformational technology that will drive growth across all industries. “Why wouldn’t you want to be in both Pepsi and Coke?” he says. “It’s the same here.”

Ankur Nagpal, general partner for USVC, which pools investments starting at as little as $500 from individuals into other funds, makes a similar argument. “Our goal is to create the best way for anyone to own a slice of the most valuable companies in the future,” he says.

It's also possible that uncertainty over Open AI’s unusual corporate structure, which for years explicitly limited the amount of returns investors could expect, could have motivated some funds to take stakes in Anthropic. And it's difficult to discount a fear of missing out. “In this case, some VCs are getting in because they do not want to miss the next big thing,” says University of Chicago economist Steve Kaplan.

For at least one investor, the overlap was unintended. The firm Madrona Ventures ended up with shares in both AI giants after one startup it invested in was bought by Open AI and another was acquired by Anthropic. Inadvertent intersections could grow more common as rapid shifts in AI technology prompt startups to alter course more often. An investor might bet on a company pursuing one vision, only to find it suddenly tackling a business that butts up against another investment, Pitch Book’s Stanford says.

A handful of big venture capital firms have supported only one of the big AI labs, including Open AI backers Khosla Ventures and Thrive Capital. Menlo Ventures and General Catalyst, meanwhile, only put their money behind Anthropic, according to the Pitch Book data.

General Catalyst declined to comment. Khosla didn't respond to requests for comment.

Matt Murphy, partner at Menlo Ventures, tells WIRED that the firm goes “all in” to support portfolio companies and doesn't believe in supporting direct competitors. “There can be nuance in some markets, where two companies may appear adjacent but are ultimately headed in very different directions,” he says. “But we did not view that to be the case with Open AI and Anthropic, and we never considered investing in Open AI for that reason.”

Thrive pointed to a year-old X post from its founder, Joshua Kushner, in which he addressed overlap in the AI industry by writing, “Call us old school … but we are serial monogamists.”

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Key Takeaways

Open AI and Anthropic May Be Rivals, but Investors Aren’t Picking Sides
Open AI and Anthropic have battled for workers, customers, and public attention
About 90 venture capital firms and other money managers have invested in both Open AI and Anthropic over the past few years, according to a WIRED analysis of data from Pitch Book, a platform that tracks startup investments
Just last week, Anthropic made a fundraising announcement that named 31 investors—at least 13 of which have stakes in Open AI, according to the Pitch Book data and WIRED reporting
The amount of overlap is astonishing for two fierce competitors that began their fundraising within a couple of years of one another