New York, March 22 - Microsoft has struck an unusual deal with AI startup Inflection AI in which it will pay about $650 million in cash, people familiar with the matter said Thursday. Microsoft will get access to Inflection's large language model and most of its staff, including the cofounders.
Inflection's AI model will be offered through Microsoft's Azure cloud service. The licensing fee will be used by Inflection to pay back investors including Greylock and Dragoneer, which are expected to make returns as high as 1.5x.
On Tuesday, Microsoft announced the hiring of Inflection co-founders Mustafa Suleyman and Karen Simonyan, as well as the majority of the AI company's 70-person team. Microsoft created a new consumer AI division called Microsoft AI to house and expand its consumer-facing AI offerings.
Under the new structure, Suleyman will be CEO of Microsoft AI and Simonyan will be chief scientist. LinkedIn profiles show that other employees, including Inflection's vice president of engineering, have also joined Microsoft.
Microsoft declined to comment on the deal and personnel moves. Inflection AI didn't immediately respond to a request for comment.
Inflection raised $1.3 billion in cash and cloud credits from Microsoft and Nvidia in June, valuing the startup at $4 billion and making it one of the most well-funded startups in generative AI.
In addition to building its own foundation model, Inflection has also launched a chatbot called Pi. The company said earlier this month that Pi had surpassed 1 million daily active users.
However, the company recently shifted its focus to selling its models to enterprise customers with the hiring of a new CEO, signaling a significant strategic shift for the startup.
Experts say the deal could draw more regulatory scrutiny for Microsoft, which is already under investigation by the U.S. Federal Trade Commission over its investments in the AI space.
"This deal can be seen as reducing competition in the market for foundational models, especially given that Inflection will likely become a shell company," said Steven Weber, a professor at the University of California, Berkeley's School of Information. (Small)
