April 7 - In a bid to help Elon Musk's AI startup, xAI, raise a staggering $3 billion, investors closely associated with the tech mogul are currently engaged in negotiations. This fundraising round is anticipated to push xAI's valuation to $18 billion.
Reportedly, venture capital firm Gigafund and Steve Jurvetson, a close friend of Musk and co-founder of another renowned venture capital firm, are among the potential investors in this round.
Jurvetson, deeply connected with Musk, not only sits on the board of SpaceX but also served as a director at Tesla until 2020. Similarly, Luke Nosek, the founder of Gigafund, is also a SpaceX board member and part of the "PayPal Mafia" along with Musk, having co-founded the famed payment company PayPal.
It's noteworthy that Musk and Nosek previously attempted to jointly acquire the AI company DeepMind, now owned by Google.
However, sources suggest that the fundraising terms for xAI have yet to be finalized, leaving room for potential changes in the plan.
This planned fundraising marks an escalation in the competition within the AI sector. In recent years, leading AI startups have secured substantial funding to meet the enormous computational demands required for developing advanced large language models, which are at the core of generative AI chatbot technology.
For instance, OpenAI, the developer of ChatGPT, secured commitments of up to $13 billion from Microsoft, while its competitor, Anthropic, successfully raised over $6 billion.
Since its inception, Musk has been striving to catch up with competitors backed by hefty funds. Last July, he publicly launched xAI, which raised concerns among some investors about whether the startup could compete with other leading AI companies in the short term. In November last year, xAI released the chatbot Grok and made it available to subscribing users on Musk's social media platform, X. Last month, xAI introduced its latest AI model, Grok-1.5, and announced plans to soon make it available to early testers and existing Grok users.
Documents filed with securities regulators in December last year indicated that xAI planned to raise $1 billion and had raised nearly $135 million from four investors. However, it's unclear whether this funding is included in the ongoing negotiations.
In January this year, Musk posted on X denying reports of him raising additional funds for xAI. He wrote, "xAI is not fundraising, nor have I discussed this with anyone."
Nevertheless, sources reveal that the current fundraising negotiations have made recent progress. Parties involved in the negotiations are exploring the possibility of establishing a special investment fund to gather funds from other investors, rather than relying solely on support from a few large venture capital firms.
This funding is crucial for xAI, as it will help the company attract top AI engineers in Silicon Valley's fiercely competitive job market. Since its inception, Musk has been waging an intense recruitment battle, poaching talent from leading AI companies like Google's DeepMind, OpenAI, and Tesla. Earlier this week, Musk stated that he must raise the salaries of Tesla's AI engineers to prevent them from being poached by companies like OpenAI.
The relationship between Musk and Sam Altman, the current CEO of OpenAI, is quite complex. They co-founded the nonprofit research lab OpenAI in 2015 but Musk left the organization a few years later due to control issues. Recently, Musk sued OpenAI and Altman, alleging that they deviated from OpenAI's original mission in pursuit of profit, thus publicly highlighting the tension between the two.
Since its inception, xAI has been closely associated with Musk's social media platform, X. xAI utilizes a plethora of posts on X to train its models, and its employees sometimes work at X's headquarters in downtown San Francisco. Last fall, Musk revealed that X's investors would hold approximately 25% of xAI.
