Each week, Verdict’s editors select a deal that illustrates the themes driving change in our sector. The deal may not always be the largest in value, or the highest profile. But we select it because of what it tells us about where the leading companies are focusing their efforts, and why. We pick apart the deal itself, and the industry theme behind it. This new, thematic deal coverage is driven by our underlying Disruptor data which tracks all major deals, patents, company filings, hiring patterns and social media buzz across our sectors.
The deal
A four-week-old French start-up, Mistral AI, has raised $113m in Europe’s largest-ever seed funding round. The record capital raising, reported on June 13, gives the fledgling start-up a valuation of $260m and places it on a competitive playing field with CHatGPT maker, OpenAI, and US Big Tech.
Go deeper with GlobalData
Why it matters
The deal demonstrates a growing AI funding frenzy as investors scramble to back the next generation of Big Tech to emerge from the growing generative AI market. Sophisticated investors are vying to make their claim on the rapidly growing AI industry while there still remains substantial upside for a competitive offering.
According to research analyst GlobalData, the global AI market will be worth $383.3bn by 2030, with a 21% compound annual growth rate between 2022 and 2030.
GlobalData analyst Josep Bori admits that a $113m seed raising for a company that was created just a few weeks earlier, and which has neither a product nor customers, would suggest an “AI bubble”.
However, Bori cautions that investment in Mistral AI was not “just a crazy bet on three unknown founders.” In fact, co-founders Guillaume Lample, Arthur Mensch, and Timothee Lacroix have spent years working on AI at Google AI subsidiary, DeepMind and Meta.
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By GlobalDataGuillaume Lample, in particular, led the development of Meta’s large language model (LLM) LLaMA before co-founding Mistral AI. “Investors are effectively investing in the management team and their idea, rather than an existing product or customer list,” added Bori.
The deal value reflects both the pedigree of the team and its potential to become the next big market-dominating company, according to Charles Kerrigan, partner for AI and emerging technologies at UK-based law firm CMS.
Historical precedent demonstrates that this is only possible through new category creation. “A new industry, not a new take on an old industry. Generative AI has potential to be that new model. And if an investor finds that, then no valuation is too high,” said Kerrigan.
David Grimm, partner at UK venture firm, AlbionVC, says that Mistral AI is essentially going head-to-head with Big Tech, which explains the size of the deal. “In general, there are great generative AI companies being built that don’t require that scale of capital to compete and can raise rounds at lower valuations, but with less dilution. We’re seeing some incredible work from the foundational AI teams at UCL which is powering lots of great opportunities more in that mould right now,” adds Grimm.
However, although Mistral AI’s seed funding round appears to be an outlier for its record investment, other big investment deals are likely to follow, according to CEO and co-founder of UK-based AI start-up, MdotM, Tomasso Migliore.
Training foundational models is highly capital intensive. “The funding levels are justified because AI requires substantial investments in R&D and software development. Also, these technologies have proven their reliability at scale, and their use cases offer clear and straightforward benefits,” adds Migliore.
The detail
Lightspeed Venture Partners led the seed funding round, with Redpoint, Index Ventures, Xavier Niel, JCDecaux Holding, Rodolphe Saadé and Motier Ventures in France, La Famiglia and Headline in Germany. Exor Ventures in Italy, Sofina in Belgium, and First Minute Capital and LocalGlobe in the UK also participated.
Mistral AI’s website landing page is a call for engineers to join the company and confirms that the start-up will operate out of Europe, with its main office in Paris.
The current AI funding frenzy began intensifying in May 2023 with Silicon Valley-based venture fund, New Enterprise Associates, making a proactive offer to AI-powered learning platform, Sana Labs.
In June 2023, AI-powered video generation company Synthesia raised $90m in Series C funding from investors led by venture capital firm Accel and backed by US chipmaker NVIDIA.
Also in June 2023, a New York-based generative AI voice start-up ElevenLabs, announced that it has raised a $19m in a Series A round led by Andreessen Horowitz, GitHub founder Nat Friedman, and Daniel Gross, a former machine learning director at Apple.
