(Bloomberg) — In the quiet days before Christmas last year, when most venture capitalists had retreated to holiday escapes in Aspen or Jackson Hole, Lightspeed Venture Partners’ investing team was contemplating a bid for a piece of OpenAI rival Anthropic.
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The venture capital firm approached Anthropic with an offer to lead a multibillion-dollar investment, according to a person familiar with the matter. An agreement quickly took shape: a $2 billion funding round at a $60 billion valuation, tripling what the startup was worth a year earlier. By early January, the deal was effectively done.
With $25 billion under management, Lightspeed is part of a rarified strata of VC firms willing and able to back tech’s hottest, and most expensive, companies. In addition to Anthropic, Lightspeed has recently participated in a large funding round for artificial intelligence company Databricks Inc. that valued it at $62 billion, as well as an investment in Elon Musk’s xAI at a $50 billion valuation.
AI megadeals have become a staple of the top-tier VC diet despite the risks, including that firms haven’t yet proven they can profit off these investments.
“It’s high-stakes poker,” said Sierra Ventures Managing Partner Tim Guleri, an AI investor.
In the past three months alone, xAI, OpenAI and Anthropic have raised more than $20 billion to support their hefty computing costs. Those deals collectively valued the three companies at more than $250 billion. Altogether, US AI startups raised a record $97 billion in 2024, according to PitchBook data.
For venture capitalists, there is rising pressure — particularly on those that missed the chance to back the top AI companies at lower prices — to align themselves with the leading players before it’s too late, investors said. Representatives for Lightspeed and Anthropic declined to comment for this story.
“It shows you’re in the game,” said Peter Werner, co-chair of Cooley’s venture capital practice group. “What you don’t want to be is a venture fund that is trying to be in the mix, missing out or developing a reputation that you’re not nimble enough to get into the best and hottest rounds.”
VC Shift
Lightspeed was founded more than 20 years ago 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 best known for savvy investments in consumer technology, fintech and enterprise software, making early bets on companies like Snap Inc., Affirm Holdings Inc. and Rubrik Inc. Despite its track record, the firm has yet to become as much of a household name as some of the most famous tier one VC players. With its aggressive AI bets, insiders say these deals could permanently elevate its standing — if they succeed.
Like much of the VC industry, Lightspeed has redirected its attention toward AI startups, backing early-stage companies such as the music company Suno Inc. and video startup Pika, in addition to bigger players. In December, it parted ways with its two lead consumer investors and said it was adjusting its consumer investing strategy to better suit the “age of AI.”
In total, Lightspeed has already invested $2.2 billion in AI deals, a figure that doesn’t include its latest Anthropic investment, according to another person familiar with the matter. Soon, it will have additional firepower to throw at the cash-hungry companies. It’s nearing the end of a fundraising expected to bring in $7 billion, a person familiar with the matter said. A spokesperson for Lightspeed declined to comment on the fundraising. The Information earlier reported on the fundraising efforts.
The firm’s Anthropic investment is one of its most ambitious yet. And while the $60 billion value may seem eye-wateringly high, Lightspeed’s partners are hopeful the deal will one day look like a bargain.
“In aggregate, it feels like the valuations are expensive because we see a lot of activity and a lot of deals getting done,” said Lightspeed Partner Guru Chahal at a Fortune Brainstorm Tech conference last year. “When you look back, every round, at the time, seemed incredibly expensive and, in retrospect, was incredibly inexpensive.”
Big AI deals remain a source of debate in Silicon Valley. While the biggest companies stand to be the most transformative, some venture capitalists argue that participating in huge funding rounds won’t yield the returns tech investors need to satisfy their backers. Those investors are targeting smaller AI apps and services, rather than the giants like Anthropic and OpenAI, engaged in developing the pricey building blocks of the industry.
The recent proliferation of AI megadeals also speaks to a broader shift in VC: a departure from the traditional strategy of early-stage investments, where firms acquire larger stakes at lower valuations. Now, VC firms are paying a major premium, and betting that a small number of AI companies could ultimately be worth over $1 trillion.
The growing size of VC funds has also required firms to write larger checks, said Weber. Rather than aiming for massive multiples on their investment, firms are “not necessarily trying to find home runs, they are trying to find ways to double their money,” he said.
“There are only so many iconic, generational pre-IPO companies out there today,” IVP General Partner Ajay Vashee said. “If your mandate is to be investing at that stage, then you have to find opportunities to put your capital to work.”
Shaky Start
The race to find those opportunities is fraught with risks, including regulatory uncertainty, fierce competition and soaring infrastructure costs for leading AI developers.
Investors fear their AI bets may fall short, leaving firms exposed if the bubble bursts. Already, the sector has seen some billion-dollar companies stumble.
For example, Lightspeed co-led a high-profile investment in Stability AI, the developer of the image generator Stable Diffusion that was valued at $1 billion in 2022. Shortly after, several key developers resigned from the business amid rising tensions with mercurial Chief Executive Officer Emad Mostaque, lawsuits and financial difficulties. Mostaque resigned from the company in early 2024. The company has since appointed a new CEO and raised additional capital, Bloomberg reported.
Lightspeed is also a major investor in Mistral, the Paris-based open-source company now competing against a slew of better-funded language models.
Of course, Lightspeed and other top VC firms are hopeful that placing several bets in competing companies will yield at least one major AI winner. If not, the fallout could be significant.
“You can’t lose too many games of this high-stakes poker,” said Sierra Ventures’ Guleri. “That’s the risk of the strategy.”
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