(Bloomberg) — Google has committed to investing $2 billion in artificial intelligence company Anthropic, cementing its relationship with the startup darling and fueling artificial intelligence hype in Silicon Valley.
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The deal is structured as a convertible note, a type of debt that will be converted into equity in the startup’s next funding round, an Anthropic spokesperson confirmed. The deal closely follows another large investment by Amazon.com Inc. in convertible bonds in Anthropic of up to $4 billion earlier this year.
Google has invested $500 million in the latest funding and has committed to adding another $1.5 billion in the future, according to people familiar with the matter who spoke on condition of anonymity because the information was confidential. The investment comes in addition to the $550 million Google invested in Anthropic earlier this year.
Google also signed a large cloud deal with Anthropic ahead of the funding, according to a person familiar with the details. The cloud deal, in which Anthropic will use Google’s suite of computing services, is even larger than its recent investment and will span several years, the person said.
The Wall Street Journal previously reported details of the Google investment.
Megadeals
Anthropic’s hectic dealmaking this year has been led in part by a new hire: Vu Bui, its head of strategic finance and investor relations, who started in September, according to his LinkedIn profile. One of the respondents said Bui was instrumental in orchestrating the company’s discussions with investors.
The next step for Anthropic could be to raise traditional funds rather than convertible notes. At this point, both Google and Amazon shares will be converted into equity and the company will receive a new valuation. Anthropic had reportedly discussed a valuation of between $20 billion and $30 billion, a price that some investors viewed as too high. The startup was valued at about $5 billion at the start of the year, according to PitchBook data.
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However, the company is unlikely to rush to raise more money because it has plenty of cash from recent investments from Google and Amazon, the people said.
Cloud Rivals
For both Google and Amazon, investing in startups like Anthropic is a way to cement relationships with the companies shaping the next wave of AI and entice them to use their proprietary cloud tools. If AI becomes ubiquitous, as some experts predict, it will require massive computing resources. This means that AI companies will be lucrative cloud customers in the future.
Google’s ties to Anthropic led to an unusual partnership with Amazon, its cloud services rival. While Google has a major cloud deal with the startup, Amazon also announced as part of its investment that it would be Anthropic’s “primary cloud provider.”
The relationship between Google, Amazon and Anthropic has been difficult at times. Google knew this summer that Anthropic wanted to raise more money, according to a person familiar with the matter. But details about the startup’s acquisition of Amazon Web Services still came as a surprise to some people within the search giant, according to this person and two others familiar with the matter.
One of the respondents said that Anthropic runs primarily on a combination of its own servers and computing power rented from Google Cloud Platform. Google, which had already invested millions in Anthropic, was reluctant to provide the amount that Amazon ultimately invested.
Amazon said in a filing that it invested $1.25 billion in Anthropic in the form of a convertible note, with the possibility of investing an additional $2.75 billion in a second note, an option to issue in the first quarter expires next year. Amazon also has a deal with Anthropic that will see the startup use AWS cloud services and chips. The debt structure of the Google and Amazon deals has not yet been reported.
The deals pit the two tech giants against Microsoft Corp. that has more than $10 billion invested in Anthropic rival OpenAI. Both OpenAI and Anthropic are developing chatbots using generative AI technology that are capable of generating content in response to prompts. Anthropic’s chatbot, Claude, places particular emphasis on responsible AI and reducing bias in technology.
– With support from Sarah Frier, Hannah Miller, Matt Day and Rachel Metz.
(Updates with context beginning in first paragraph.)
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