3/21/2024: How to Acquire a Company without Actually Acquiring a Company?
The curious case of Inflection AI
More details about the Inflection AI saga were revealed. It increasingly looks like an acquisition with an innovative structure. . According to The Information, Microsoft is *mass hiring* Inflection’s AI team and has agreed to pay $650M to *license* models the Inflection AI has built. As a result, existing investors will be making a modest return on their investments while Microsoft gains access to the IP and the team.
Two weeks ago, Inflection announced their new flagship model Inflection 2.5, which is supposed to be competitive with GPT-4 and Gemini. The company also disclosed they have one million daily and six million monthly active users who have exchanged more than four billion messages with Pi, their consumer chat bot. You would think the company was crushing it with all the progress. But they probably did need to raise more money to continue. Well, who is going to give them another $5B to be the No. 4 player (behind Gemini, OpenAI and Anthropic) in this AI race? I suppose Microsoft saw an opening and proposed a deal that the founders couldn’t resist.
The deal structure is very interesting. Technically, it’s not an acquisition. In fact, this deal is better than an acquisition. Microsoft is spending a couple of billions (at most) to hire a world-class AI team and have their hands on a very powerful AI model without dealing with anti-trust regulations. Investors get the money back with potential upsides. Employees are moving to lucrative Microsoft positions to work on the same cool technology. It appears there are no losers while Microsoft emerges as the biggest winner from the deal.