According to Vinod Khosla, an OpenAI supporter, AI startups are overvalued and most of them won’t make any money.
Since the launch of ChatGPT OpenAI chatbot a year ago, investors have rushed to invest in AI startups, including rival chatbot makers Inflection, Anthropic and Cohere, sending valuations skyrocketing. “Most of today’s artificial intelligence investments, venture investments, will lose money,” Khosla told the Financial Times during a technology conference in Laguna Beach, California.
Investments in start-ups
noticed the similarity between the hype around artificial intelligence and last year’s investment frenzy in cryptocurrency startups, including the failed FTX exchange.
Many later market participants “invest because everyone else invests, and that’s what happens in artificial intelligence,” he said. Venture capitalists have invested $21.5 billion in artificial intelligence companies globally this year, up from $5.1 billion in all of 2022, according to PitchBook.
Many hope that bets on highly valued companies will pay off because others will later invest for even higher valuations – a phenomenon known as the “greater fool theory,” Khosla told the FT.
Khosla Ventures was one of the first venture firms to bet on OpenAI, investing $50 million in the young company in early 2019 in a round that valued the startup at $1 billion. OpenAI is currently seeking a valuation of around $86 billion.
Valuations of competing artificial intelligence companies have also soared this year. Anthropic was valued at $5 billion in a deal earlier this year before it raised a larger round from Amazon, while Cohere was valued at $2.1 billion this summer and Inflection was reportedly valued at $4 billion. Newly established companies also secured attractive sums.