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Big Tech Becoming VCs 🏧

As AI captures headlines, there’s a battle brewing in the back. The battle for who holds the most powerful piece of technology in almost two decades after the Internet and Big Tech is trying to get ahead. 

How, you ask? By wielding one of their most powerful weapons: Checkbooks.

Unsurprisingly, one of the biggest investors in AI startups has been Big Tech, specifically Microsoft, Amazon, Nvidia and Google (MANG).

These companies have been strategically placing their financial chips on the AI chess board.

The total capital raised in their 2023 deals was $25B+, which is ~8% of the total venture raised in North America. 

The MANG investments are particularly concentrated in Data and AI: their deals raised $23B.

Large Cheques for Large Language Models

This shouldn’t come as a shock but most of the investments are in LLM startups. And that’s by intention. 

LLM startups are on the hunt for - customers computing resources. 

Cloud providers are on the hunt for - customers. 

#MatchMadeInHeaven

And it turns out that cloud providers funding their customers is a great business model. The investment capital makes a round trip back to the P&L in the form of revenue and helps them break even on the investment faster. 

Digital TollBooths

The MANG companies have transformed into the digital era’s toll collectors, pocketing fees from a vast number of customers.

It is estimated that for every $1 of inference that customers pay their LLM provider, more than half of it ends in the hyper-scaler’s piggy bank to cover those hefty infrastructure bills.

In an earlier era, Big Tech might have just bought these startups outright. After all, they’re not pinching pennies: MANG collectively raked in $276B in operating profits in 2023 alone. 

However, Washington’s antitrust advocates want to restrain big tech bloat.

That suggests these enormous investments may yet be seen as a regulatory dodge. Big Tech companies are in effect locking in their customers while juicing their own revenues. 

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