Microsoft invests in yet another AI company

This is our Wednesday show, focused on startup and venture capital news that matters. We pull the top stories from the week thus far, and give them the Equity treatment to put them into proper context. On the show today: Microsoft invests in Mistral AI: Sure, it's not the biggest check, but as regulatory oversight hovers over Microsoft's shoulder, the deal makes sense. Thrasio files for bankruptcy: What happens if you raise billions to pursue a market opportunity, but the market shifts under your feet? Glean raises $200M: It turns out that you can raise mega rounds in 2024, you just need to work in enterprise AI, have a few hundred customers, and collect checks from a host of VCs at once. And on the venture side of things: COTU Ventures has put together a $54 million fund, while Zacua Ventures has put together a $56 million vehicle. For episode transcripts and more, head to Equity’s Simplecast website. Equity drops at 7 a.m. PT every Monday, Wednesday and Friday, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts. TechCrunch also has a great show on crypto, a show that interviews founders and more! Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products. Learn more about your ad choices. Visit megaphone.fm/adchoices

• 0:10Speaker 00

  Hello and welcome back to Equity, the TechCrunch podcast where we unpack the numbers and the nuance behind the headlines. This is Alex and today is February 28th, 2024. Not the last day of February this year. There's one more day. It's a special February, but this is our Wednesday show. Welcome. This is where we dig into the critical startup and venture capital stories from the week thus far. And on today's show, we have a number of absolute bangers. We're talking about Microsoft putting money into Mistral AI, Thrasy Ho's bankruptcy, Glean and Enterprise AI and mega rounds in the AI era, and then two new venture funds focused on early-stage startups, neither of which that have AI in their name.

• 0:55Speaker 00

  To start us off, let's talk about Microsoft putting money into Mistral. Yesterday, Mistral AI, the Paris-based AI startup that's working on foundational models that we've discussed on this show several times, announced a new large language model that could rival OpenAI's GPT-4, a chat assistant and a distribution partnership with Microsoft. But most importantly, the company also raised for Microsoft 15 million euro or about 16.3 million dollars. Now, this check was not structured as a priced equity round. Instead, the money will convert to equity during Mistral's next fundraise, so there's no valuation change to report. But I think the

• 1:37Speaker 00

  deal tells us quite a lot. First of all, recall that Mistral raised about 385 million euro or 415 million dollars back in December of 2023. That's just not very long ago, and I think it implies that the capital here is entirely strategic instead of needed in any cash sense. Second, Microsoft is spreading its bets somewhat. Even if its investment into Mistral is worth less than 1% of the company's current $2 billion valuation, it's still money from a big tech company into an AI Foundation model firm. And finally, and I think most saliently, that regulatory oversight of tech these days is no frickin joke.

• 2:18Speaker 00

  Recall that the FTC launched a quote inquiry into generative AI investments and partnerships end quote this January. The American FTC said at the time that this would, and I'm going to paraphrase just a little bit here, scrutinize corporate partnerships and investments between AI providers and big tech companies to build a better internal understanding of the relationships and their competitive impact. The companies that were called out there were Alphabet, Amazon, Anthropic, Microsoft and OpenAI, two foundational model companies and several big tech backers. But the US is not alone. The EU is also getting involved. The European Commission announced this January that it was quote,

• 2:59Speaker 00

  checking whether Microsoft's investment in OpenAI might be reviewable under the EU merger regulation end quote. So how better to show that you are not merged with one massive AI model company, even if you own a big chunk of it, than partnering with another and taking a small equity stake. It's very cheap defense for Microsoft, which is worth several trillion dollars and could find 15 million euro just by collecting loose change from its various office parking lots. Still, this is good for Mistral though. The company gets distro from a mega cap tech giant and free money. Not bad. Next up, the story of Icarus told in startup form.

• 3:41Speaker 00

  After raising billions of dollars in equity and debt rounds to snap up e-commerce brands that it would theoretically centralize and then run more efficiently, Thrasio has filed for bankruptcy protection. Now, TechCrunch reports that the company has secured $90 million in emergency financing from existing lenders so that way it can keep operating while going through bankruptcy. But oh my gosh, what a rise and then what a fall. What happened to Thrasio? Well, I have a couple of ideas. First of all, the massive rush to push billions of dollars into e-commerce aggregators during the pandemic boom always seemed rushed.

• 4:20Speaker 00

  Expensive and somewhat untested at that scale. Sure, you can understand the hype as at the time e-commerce sales were growing at a far faster clip than we had seen historically. But when you bet your business model on cheap capital and a market growth trajectory that turned out to be a short-lived trend, you can run into trouble. Since Thrasio raised its $1 billion Series D back in 2021, capital has become more expensive, AKA interest rates, and e-commerce growth has slowed. That combination seems to have wounded Thrasio to the point when it's going to have to completely reboot its cap table. Brutal. Thrasio had cut staff before, so the new financial distress is not a massive shock.

• 5:03Speaker 00

  But gosh, the e-commerce aggregator bet seems to be a little off-target in retrospect.

• 5:10Speaker 00

  Moving on, we are returning to AI because that's the way tech news rolls these days. Generative AI has known issues, TechCrunch's Kyle Wiggers writes. But one thing that it is known to be super good at is pulling answers from big buckets of data. And that skill is what Glean is betting on. The startup connects to enterprise, first and third-party databases to field plain English requests. So you can think of it as something like a custom chat GPT for individual companies. After starting with Search Roots, Glean, quote, "grew into a platform that analyzes a company's databases and data stores to answer employee inquiries after generative AI took off." That's according to TechCrunch.

• 5:53Speaker 00

  And we think it's pretty cool, and VCs definitely seem to agree because Glean just raised $200 million in a Series D that was co-led by Kleiner Perkins and Lightspeed Venture Partners. And it seems that everyone else in the venture world showed up to participate. Other capital for the round came from General Catalyst, Sequoia Capital, Adam Street, Co2, Iconic, IVP, Latitude Capital, and even some strategics, including Capital One Ventures, City Ventures, Databricks Ventures, and Workday Ventures. That is so many VCs and corporates. It seems that there are some companies out there who may want to buy what Glean is cooking up and participate in the upside,

• 6:37Speaker 00

  but they're paying through the nose for it because the company is now worth $2.2 billion, a figure that is predicated on its more than 200 customers. How big is Glean in revenue terms? Wouldn't it be nice to know? I would love to know because it would help me understand how it just raised that large of a round in 2024. So Glean could have just shared more than just that its annual recurring revenue nearly quadrupled in the last year. I don't know really what that means. From $1 to four? From 1 million to 4 million? From 10 million to 40 million? Who knows? Glean does, but I don't.

• 7:18Speaker 00

  Turning the page from startups to venture, let's talk about a couple of new funds. The first one, Zacua Ventures, has put together an inaugural $56 million fund. It intends to target early-stage construction technology startups and was backed by 19 of the construction sector's biggest corporations, TechCrunch reports. That does mean that the companies it invests in should have pretty easy connections to potential clients, which smells like growth to me. And just to be honest, if you care about construction tech or prop tech, we have covered this a lot on the show, so feel free to go back through the archives because Mary Ann is an expert on all that. And so it's been one of our key themes for several years. So cool to see Zakuwa in that space.

• 8:00Speaker 00

  Finally, for them, $56 million is not a massive fund. It's about a quarter of what Glean just raised in a single round. But for early-stage startups, firms like Zakuwa are critical because they often have domain-specific knowledge that helps them spot potential winners that general VCs might miss.

• 8:21Speaker 00

  And then finally, to close us out, Dubai-based early-stage venture firm Cotu Ventures, that's C-O-T-U, all caps Ventures, not Coatoo, that's different, has put together $54 million for its inaugural fund to support startups in the Middle East from pre-seed to seed stages. Now, Mina funding fell 23% last year, according to Magnet. So, the fresh fund and its focus on super early-stage startups in the region is very cool to see. Seed capital is the foundation on which all later-stage venture rests. So, these funds are critical to keep our eyes on. Sure, the multi-billion-dollar funds get more press, but without pre-seed checks, how many startups would never get off the ground?

• 9:09Speaker 00

  That is our show for this ever so lovely Wednesday morning. We are back on Friday with our news roundtable roundup. And then this Saturday, we have an awesome interview with a leading fintech giant that you are going to want to hear, Mary Ann Leddatt. So, make sure that you are subscribed to Equity in your podcast feeds of choice, so that way you don't miss it. We have bangers coming the rest of the week. Anyways, if you need more from us in the meantime, we are EquityPod over on X and Threads, and we are TechCrunch Pods over on TikTok. My name is Alex, you are amazing, I'll talk to you soon, bye.

• 9:44Speaker 00

  Equity is hosted by myself, Alex Wilhelm, and TechCrunch Senior Reporter, Mary Ann Azvedo. We are produced by Teresa Loconsolo with editing by Kel. Bryce Durbin is our illustrator, and a big thank you to the audience development team and Henry Pickavet, who manages TechCrunch Audio Products. Thank you so much for listening, and we'll talk to you next time.