The Never-Ending AI Valuation Escalation

This column is a look back at the week that was in AI. Read the previous one here.

It really never stops.

It’s only been a few weeks since OpenAI announced its long-awaited raise of $6.6 billion at a post-money valuation of $157 billion. The Thrive Capital-led raise nearly doubled the San Francisco-based AI giant’s $80 billion valuation from its secondary offering in February.

The value seemed lofty for a company that loses a lot of money and now has a 46x revenue multiple. But OpenAI is OpenAI. It is ChatGPT and Sam Altman. It is a headline maker, a soap opera and a worry for regulators. It is what ushered in the gold rush to AI that began just a couple years ago and still has yet to let up.

And while there were skeptics of OpenAI’s raise, that gold rush it caused seems ready to push even more AI startups’ valuations to heights rarely seen in venture.

In the last few weeks reports have surfaced that xAI, Perplexity and perhaps Anthropic all are raising new cash (hey, AI isn’t cheap) at exploding valuations.

Just this week, it was reported Elon Musk’s Burlingame, California-based xAI is in early talks with investors for new $5 billion funding round that would value it around $45 billion — a billion dollars more than what he bought Twitter for.

xAI just closed a $6 billion round at a $24 billion post-money valuation in May, meaning if it does raise the new round, its value would have nearly doubled in five months — to the point where it would now be the 9th most valuable VC-backed startup (per our Unicorn Board), just in front of Databricks.

Of course, xAI is not the only generative AI company looking to get into that rarified neighborhood. Just a couple weeks before OpenAI officially announced its raise, it was reported competitor Anthropic had just started to chat with investors about raising at a $30 billion to $40 billion valuation.

Just in February, the San Francisco startup raised $750 million in fresh capital that valued it around $18.5 billion — again, meaning it is looking to double its valuation and become one of the 15 most-valuable startups in the world.

On a smaller scale, it also was reported just more than a week ago that AI search startup Perplexity — which in June reportedly received between $10 million and $20 million from SoftBank at a $3 billion valuation — is in talks to raise new funding that would nearly triple its valuation to $8 billion.

The fact that a 167% valuation jump to $9 billion can be considered “smaller scale” says a lot about the current state of venture funding and AI.

At some point, the crazy valuation hikes — seemingly monthly — have to stop and investors have to ask themselves how they are going to make money on these deals. While that may not be a concern for large corporations who get other benefits from these deals, it certainly has to be a consideration for VCs who have often talked about the lack of liquidity they face thanks to a slow IPO and M&A market.

However, that seems to be another problem for another day when it comes to AI — where the AI valuation escalation never stops.

Things that caught our eye and other stuff:

Speaking of sky-rocketing valuations in no-time flat, ex-Salesforce 1 co-CEO Bret Taylor’s conversational AI startup Sierra raised $175 million this week in a funding round led by Greenoaks Capital that gave it a $4.5 billion valuation. It was just in February when the San Francisco-based firm raised $110 million led by Sequoia Capital and Benchmark at a reported valuation of nearly $1 billion. A 4.5x increase in value in eight months time is not too shabby. And yes, Taylor also is chairman of the board at OpenAI — whose large language models Sierra uses — although he has said there are no conflicts of interest.