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Tencent Technology News, August 9, according to foreign media reports, a new transaction model is emerging in Silicon Valley, involving large technology companies absorbing the core technology and team of artificial intelligence startups through technology licensing and hiring key talents rather than direct acquisitions. This model not only enables the founders of startups to continue their technological innovation with the support of large companies' resources, but also provides investors with a quick return path. However, this practice has also raised concerns about the avoidance of regulatory scrutiny, the future of the remaining employees of startups, and the health of the entire technology ecosystem.

Noam Shazeer and Daniel De Freitas, founders of the artificial intelligence startup Character.AI, left Google in 2022 because they felt the tech giant was moving too slowly. They then founded their own chatbot startup Character.AI and successfully attracted nearly $200 million in investment.

Just recently, Chazelle and de Freitas announced that they would return to Google, reaching an agreement with Google to rejoin Google's artificial intelligence research department and bring their startup's technology to Google.

Although Google gained technology and talent, it did not acquire Character.AI. Google chose an unusual path and agreed to pay $3 billion to obtain licensing rights to Character.AI's technology. About $2.5 billion of this will be used to buy back Character.AI's shares. As a major shareholder in the startup, Chazer expects to receive proceeds of $750 million to $1 billion. Character.AI will lose the support of its founders and investors and continue to operate independently.

The deal is part of a recent wave of unusual transactions in Silicon Valley, where large technology companies, which typically buy startups outright, are beginning to adopt more complex deal structures for young artificial intelligence companies, acquiring the core technology and talent of startups through technology licensing and hiring top employees without becoming formal owners.

Behind this deal pattern is the attempt of large technology companies to avoid regulatory scrutiny while maintaining their leading position in the field of artificial intelligence. Companies such as Google, Amazon, Meta, Apple and Microsoft are under close scrutiny by regulators such as the Federal Trade Commission to determine whether they restrict market competition by acquiring startups and other means.

Justin Johnson, a business economist at Cornell University who focuses on antitrust issues, noted that big tech companies may be trying to avoid regulatory scrutiny by not buying targets directly, but the deals are actually starting to look like regular acquisitions.

Google said it was "very excited" to have Chazelle and some of his colleagues back, but declined to comment on the antitrust review that followed a landmark ruling by a federal judge on Monday that Google violated antitrust laws by abusing its online search dominance.

Microsoft is breaking new ground

Since the AI ​​boom took off in late 2022, it has changed the landscape of tech deals. Investors initially raced to pump money into AI startups at high valuations, leading to an unusually frenetic pace of investment. However, as some high-profile AI startups failed to pan out, the excitement cooled, creating opportunities for big tech companies to step in with non-traditional deals.

Microsoft started the trend in March, agreeing to pay more than $650 million to license technology from AI startup Inflection and hire nearly all of its employees, including company founder Mustafa Suleyman and chief scientist Karen Simonyan. Suleyman now leads Microsoft's consumer AI business. Amazon also reached a similar deal with AI startup Adept in June, taking many of its technical staff, including founder David Luan, to join Amazon.

Regulators are watching the deals. The Federal Trade Commission said it is conducting a broad study of AI deals between startups and Microsoft, Amazon and Google. It is also investigating whether Microsoft should have notified regulators about the Inflection deal, which would have put the arrangement under more direct scrutiny.

There are rewards but also risks

Silicon Valley has embraced these unusual deals because they allow startup founders to continue developing their technology with the resources of a large company without having to worry about financial problems. These deals can also provide investors with quick returns. For example, Character.AI investors received a 2.5x return just two years after the Google licensing deal.

However, these deals also leave some problems, such as the companies and employees left behind. Some technology investors and entrepreneurs have expressed concerns that if company founders and employees cannot get the returns they deserve from these deals, it will have a negative impact on the health of the entire ecosystem.

It’s unclear how the remaining companies will fare. At Character.AI, general counsel Dominic Perella became interim CEO. The startup said it was “committed to serving our users with innovative new products.” At Adept, teams working on product, sales and other areas did not join Amazon, with former engineering head Zach Brock taking over as CEO. The company is currently trying to license its technology to other companies. Inflection also hired a new CEO, but only two employees stayed, with the rest — about 70 people — joining Microsoft. Inflection used $650 million in licensing fees from Microsoft to repay its investors.

As the AI ​​industry continues to grow, expect more deals like this to come. Many AI startups have raised huge rounds of funding on ambitious goals, and large acquirers remain eager to pay for the best talent, ideas, and products. At the same time, some startups have had trouble making money and competing with large companies, so they may be more willing to negotiate deals.

Investor Matt Turck said he hopes these types of deals don’t continue because they create a confusing structure that undermines alignment between founders, employees, and investors. As the AI ​​industry continues to grow, we’re likely to see more deals like this and their impact on the industry landscape and innovation ecosystem. “Founders and investors realize that not every high-profile AI startup with a great founder is going to be the next big thing,” said Turck.OpenAI Or Google." (Compiled by Wuji)