AI M&A, IPO: OpenAI launches acquisition offensive to expand market

This column is a look back at the week in AI. Read the previous installment here.

In the startup world, big funding rounds may get all the attention, but what really matters to investors is the exit.

The startup M&A market has been sluggish over the past few years, with no IPO pipeline.

But just as AI is taking over the venture market, it may also take over the M&A and IPO markets.

OpenAI, which reportedly doubled its annual revenue to $3.4 billion, has pumped cash into two deals in recent days. The ChatGPT founders first acquired search and analytics startup Rockset last week. The San Mateo, California-based company has raised about $118 million to date, according to Crunchbase. Terms of the deals were not disclosed.

And this week, in what it called a hire-by-acquisition move, the AI giant acquired video collaboration startup Multi (formerly Remotion). The San Francisco-based company has raised $13 million to date, according to Crunchbase.

Overall, startup-related M&A is on the rise, with the current quarter already seeing more activity than Q1, with over 430 deals, according to Crunchbase data, though these numbers are still relatively low compared to past quarters.

While these two deals aren't likely to set the M&A market on fire, they do double the number of deals OpenAI has done to date, according to Crunchbase. This may signal a new appetite for inorganic growth, a desire that nearly every big tech company must acquire as it scales. As OpenAI's revenue continues to grow and its valuation continues to rise, there's no doubt that the company has what it takes to easily become a Goliath among suitors.

But M&A isn't the only exit strategy, and AI could play a part in it: Last week, artificial intelligence chip startup Cerebras Systems was reported to have privately filed for an initial public offering.

It's a good time to be a developer of AI chips. NVIDIA has become one of the most valuable companies in the world and fundraising is booming in the sector. Astera Labs, which provides data and memory connectivity solutions to some of the world's largest chipmakers, successfully IPO'd, even as its stock price has fallen from its highs.

Other companies that went public this year also had strong ties to AI, like biotech company Tempus AI, or made a point of highlighting their AI ties, like Reddit.

Public investors are clearly interested in trends in AI technology and the direction it may lead.

Investors have been waiting years for the IPO and M&A markets to pick up steam again, so it’s no surprise to see AI leading the way, just as it has led everything else.

With big AI companies like OpenAI and Nvidia, which has shown interest in competing with cloud service providers, becoming more acquisitive and more startups seeing now as the right time to test the public markets, investors may see a wave of much-needed profits rolling in.

Some things that caught our eye and more:

The Stability AI soap opera took a new turn this week when investors including former Facebook president Sean Parker poured in $80 million to acquire the artificial intelligence-driven visual arts startup. The new investors have struck deals with suppliers to forgive about $100 million in debt owed by Stability and negotiated for the startup to be relieved of $300 million in future debt, according to a Wall Street Journal article. This is the latest development for Stability, which secured a $101 million round of funding in 2022 led by Coatue, Lightspeed Venture Partners and O'Shaughnessy Ventures. The company did not disclose its valuation at the time, but Bloomberg reported that the new capital infusion valued the company at about $1 billion. However, last spring, Forbes reported that Stability AI founder Emad Mostakeh had made exaggerated statements about his background and the generative AI startup. At the time, some AI researchers disputed the company's claim that it created the image generator Stable Diffusion, an open-source project developed by researchers. The London-based startup was also reportedly looking to raise another $1 billion in capital at a multibillion-dollar valuation, but talks had stalled. In March, reports surfaced that Mostaque had left the company after an investor revolt. The company reportedly said in an internal memo that it was looking to “right-size” its operations after a period of unsustainable growth. Finally, in April, the company laid off 10% of its employees, an estimated 20 people, according to a CNBC report. That's quite an upheaval even for an AI startup.
Another round that caught our attention this week was by a Palo Alto, California-based startup. MEandMine, which develops AI flagging to identify psychological risk in young children, raised $4.5 million in funding led by K5 Global. The startup offers AI-driven screening that identifies psychological risk in students in real time by playing games using data points used for AI flagging, allowing teachers, counselors, and others to screen early and make informed decisions. The company said that early results of a pilot in a California school showed 91% accuracy. MEandMine's algorithm can initiate games based on an individual student's makeup to help them calm down.