Amazon Is Betting Billions on This AI Startup

Author

Alec Beard
May 09, 2024

Hey there SaaS Sentinel readers đź‘‹

Amazon is betting billions on a new AI startup, IPOs are being delayed, and VC partners are advising startups to say “no” to revenue if they want to scale. Here’s what’s happening in SaaS this week.

What to Know about the AI Company Amazon Is Betting Billions On

Image Credits: Amazon

In a major signal of support, Amazon has doubled down on its investment in Anthropic, the AI safety startup behind the conversational agent Claude. The e-commerce giant announced an additional $2.75 billion commitment to the San Francisco company last month, bringing its total funding to date in Anthropic to $4 billion.

So… what's the deal behind the company Amazon is betting billions on? Is it really that different than its competitors? (*cough* Open AI).

Founded in 2021 by siblings Dario and Daniela Amodei, both former researchers at OpenAI, Anthropic aims to ensure transformative AI technologies are developed and applied in a way that benefits humanity. While many other AI companies focus on maximizing their models’ capabilities, Anthropic emphasizes safety, transparency, and value alignment throughout their research and development process.

This approach has yielded promising results with products like Claude. And while OpenAI's ChatGPT technically launched first, Anthropic claims that Claude was "much less likely to produce harmful outputs, easier to converse with, and more steerable." 

Now, the company continues to advance its model family with recent additions like Haiku, Sonnet, and Opus. And the company’s pace of innovation likely won’t slow down either — Amazon's major investment is a strong vote of confidence in Anthropic's vision, and it also positions Anthropic well to handle the exponentially rising costs of AI development.

And trust us, effectively training AI models is NOT cheap. Anthropic CEO Dario Amodei predicts training cutting-edge models could reach $1 billion now and potentially hit $100 billion in just a few years. Fortunately for Anthropic, by leaning on Amazon Web Service’s existing infrastructure and capital, the AI startup can focus on building new AI models without worrying too much about these ballooning costs.

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Despite Recent Successes, the IPO Market Still Won’t Fully Open until 2025

Image Credits: Getty Images

While 2022 saw some high-profile tech companies successfully list on public markets, experts believe a broader resurgence of IPO activity may still be over a year away. And sure, while recent debuts like Reddit and Ibotta have exceeded the public’s initial expectations, many stocks have pulled back from their opening valuations.

According to analysts, one to two quarters of trading data is not enough evidence to prove that the market volatility from the past year has completely stabilized. 

Jeremy Glaser, a lawyer and co-chair of Mintz’s venture capital and emerging companies practice, agrees with these sentiments. “I’ve lived through a lot of IPO cycles, you really do need an extended period of time where you are seeing multiple IPOs staying above the IPO price,” Glaser said. “I don’t know if we are there yet. We have some positive signs but we need to see more companies staying above the IPO price for an extended amount of time.”

And Glaser is justified in his thinking. Recent economic headwinds aside, the uncertainty surrounding the upcoming midterm elections in the U.S. and potential gifts in interest rates by the Federal Reserve are also introducing macroeconomic risks that could further delay several IPOs.  

Now obviously founders and VCs look at a lot more than just the broad economy when deciding if it's IPO time. But these macro risks definitely aren't helping the "when is the perfect moment?" debate. At the end of the day, as long as Wall Street still has question marks, a lot of companies will probably prefer to sit on the sidelines until things feel more stable and predictable again.

As a result, many VCs are counseling their portfolio companies to delay IPO preparations until 2025 at the earliest. Exits may instead come through the M&A route, which some observers say is currently more active. According to industry insiders, should market stability hold in the quarters ahead, 2025 could become a banner year for tech listings.

So, from where we're sitting, recovery in the IPO market appears to be a slow burn. Once investors see these debuts staying power, then maybe we'll start to see the IPO party really kick off again. For now, looks like a lot of companies are content to wait it out.

When Saying "No" To Revenue Could Spell Success for Startups

Image Credits: TechCrunch

Between your seed round and your series A, generating revenue should be one of the biggest priorities for startup founders. But as a company starts to scale, saying “no” to revenue could be one of the most important decisions startups can make.

Speaking at a recent event, Lightspeed Partner Alex Kayyal cautioned startups against over-relying on a single big client. Not only could such an influential partner dictate pricing and terms to their advantage, but the company could also risk becoming an outsourced resource narrowly focused on one use case over true product-market fit.

The trouble with one big customer is that it has the power to throw its weight around. “You know, you see this all the time in retail with Walmart, where they can dictate terms. They can drive pricing power, and as a small company, you’re at their whim,” Kayyal said.

Not only does customizing your products and roadmaps for one customer pull energy away from building solutions applicable to a wide market, but it could set a precedent where future clients expect the same customized treatment from your development teams.

For these reasons, saying "no" to large potential deals may be one of the best decisions startup founders can make — even if it means temporarily leaving money on the table.

Parting Thoughts

Well, that’s the tech news for this week. Hit reply and let us know — did you learn something from today’s newsletter?