Quirky, Liquidity, Code, Math

Happy Friday everyone! Today's update is a bit longer than usual - there was a flurry of activity in Generative AI this week, led by OpenAI and closely followed by big rounds for code-generation startups. But first, let me point you to Crunchbase's review of North American VC-led funding over the third quarter. They characterize the funding environment as quirky . Can't say I disagree. While the total volume of deals is down, investors continue to make concentrated bets at very large valuations on a handful of Generative AI names.

Looking at the broader North American venture capital market, after a peak in early 2022, funding took a significant dip, slipping through Q4 2023. 2023 was tough overall though Generative AI and Cybersecurity have both driven activity. Q2 2024 showed a nice uptick, with funding up 22% year over year. This latest quarter's 10% year over year decline indicates ongoing caution as investors process the implications of a changing interest rate environment, global political risk and, perhaps, a bit more realism in how they assess the impact of Generative AI. Naah, scratch that last part.

OpenAI Happenings

OpenAI announced a much anticipated funding round, raising $6.6 billion in fresh capital, at a valuation of $157 billion and positioning itself among the highest-valued private companies globally. The funding round was led by Thrive Capital , which contributed $1.3 billion, while 微软 added $750 million to its existing $13 billion investment. Other significant participants included Tiger Global Management investing $350 million, SoftBank Group Corp. with $500 million, and both Altimeter Capital and Coatue Management contributing $250 million each. Khosla Ventures , Fidelity Management & Research Co. , and 英伟达 also participated in the round.

The funding terms included notable conditions, with OpenAI requesting investors refrain from backing five specific competitors, including Anthropic , xAI , and Safe Superintelligence Inc. the latter founded by former OpenAI co-founder Ilya Sutskever . Some investments were structured through Special Purpose Vehicles, enabling broader participation while maintaining control over the investor base.

OpenAI 's financials show current year revenue projections of $3.6 billion, coupled with operating losses exceeding $5 billion. The company has set a revenue target of $11.6 billion for 2025. User metrics indicate significant market penetration, with ChatGPT reaching 250 million weekly active users and its premium service, ChatGPT Plus, acquiring 11 million subscribers. The company's enterprise service has surpassed one million users.

The funding round occurs against a backdrop of significant organizational changes at OpenAI . The company has experienced several high-profile departures, including CTO Mira Murati , VP of Research Barret Zoph , and Chief Research Officer Bob McGrew . These exits follow the November 2023 temporary removal and reinstatement of CEO Sam Altman, as well as earlier departures of co-founders John Schulman and Ilya Sutskever Concurrent with these leadership changes, OpenAI is discussing a transition from its current nonprofit structure to a for-profit benefit corporation , potentially including a substantial equity allocation to Sam.

Further strengthening its financial position, OpenAI has secured an additional $4 billion revolving credit line, increasing its total liquidity to over $10 billion. This capital is expected to fund computing capacity and ongoing research and development efforts. The company faces competition from both established technology companies and emerging AI startups, while managing the complexities of rapid growth and organizational restructuring.

The scale of this funding round represents a significant capital allocation to artificial intelligence development and sets new benchmarks for valuations in the sector.

VCs Are All-in for Code Generation Startups

poolside , an AI-assisted code generation startup, has secured $500 million in a Series B funding round led by Bain Capital Ventures , latest in a series of massive bets in this specific area of generative AI. The round included participation from DST Global , StepStone Group , 花旗 Ventures, and 汇丰 Ventures, and values the company at $3 billion. poolside has raised a total of $626 million since its founding in May 2023.

On a related note Resolve AI , focused on automating software operations, announced a $35 million seed round led by Greylock . The sizable seed round included participation from Unusual Ventures and quite a roster of angel investors including executives from Amazon Web Services (AWS) , 谷歌 , GitHub , and OpenAI .

These investments reflect two complementary trends in AI tooling for software development: coding assistance and operational automation. While poolside , led by former GitHub CTO Jason Warner , is developing language models to assist with code creation and testing, Resolve AI is tackling the operational side of software engineering. Resolve AI 's founders, drawing from their experience at Splunk 's Observability business, aim to address the fact that engineers spend the majority of their time on operational tasks like troubleshooting and infrastructure management.

The substantial funding for both companies underscores the market's recognition of different pain points in the software development lifecycle. poolside is targeting enterprise customers with large engineering teams, while Resolve AI focuses on automating on-call incident troubleshooting and remediation to improve system reliability and reduce engineer burnout.

The latest wave of funding is part of a larger trend of significant funding rounds in generative AI for software development. In August, San Francisco-based Magic raised $320 million from investors including Eric Schmidt and Sequoia Capital , while Codeium closed a $150 million Series C led by General Catalyst , reaching a valuation of $1.25 billion. Earlier in August, Cognition secured $175 million at a $2 billion valuation .

The surge of VC investments in AI for software development is not all that surprising once you look at metrics on usage and spending. GitHub reported in April that its AI coding assistant, Copilot, had over 1.8 million paying users and more than 50,000 business customers. According to Polaris Market Research, the AI coding tools market could reach $27 billion by 2032 .

The rapid pace of funding in this sector is still quite notable, with many companies raising successive rounds within months. Magic 's recent raise came shortly after a previous round in February, while Codeium 's Series C followed just seven months after its Series B. This accelerated funding cadence suggests investors are racing to capture market share in what they perceive as a transformative technology sector.

The appeal for investors lies in the potential for AI to address longstanding challenges in software development, including talent shortages and the time-intensive nature of coding. AI assistants promise to increase developer productivity, improve code quality, and potentially democratize software creation. poolside 's Warner emphasized this potential, stating, "Only a handful of companies will reach artificial general intelligence — and they are being forged at this very moment. We believe software development will be the first broad capability where AI will reach and surpass human-level intelligence."

Despite the enthusiasm, the sector faces challenges, including concerns about security, copyright, and the reliability of AI-generated code. However, the vast majority of developers have shown openness to AI tools, according to recent surveys, suggesting a significant market opportunity for companies that can effectively address these concerns while delivering genuine productivity improvements.

As competition intensifies, differentiation becomes crucial. poolside has chosen to develop its own language models rather than rely on existing ones, a strategy aimed at maintaining control over its long-term business model. Other companies are focusing on specific niches or technical advantages, such as Magic 's emphasis on ultra-long context windows for more comprehensive code intelligence, while Resolve AI differentiating itself by focusing on operational automation and incident resolution.

Further underscoring the robust funding environment for AI developer tools, Qodo (formerly Codium) has secured a $40 million in a Series A funding round led by Susa Ventures and Square Peg , bringing its total investment to $50 million. The company, which focuses on enhancing code quality through AI-empowered coding, testing, and reviewing, represents yet another facet of the evolving landscape of AI-assisted software development.

Founded in 2022 by Itamar Friedman and Dedy Kredo , Qodo has quickly gained traction. The company has seen quick pick up by prominent Israeli tech companies HiBob , Bringg , and WalkMe? , highlighting market demand for tools that prioritize code quality alongside development speed.

The influx of capital into AI coding startups signals a belief among investors that software development is poised for significant disruption. As these well-funded companies move from development to deployment, the coming months will be crucial in determining which approaches and business models prove most effective and create the most value.

Further reading:

• AI coding startup Poolside raises $500M from eBay, Nvidia, and others
• AI Coding Is Ultra Hot, With Magic And Codeium Revealing Big Rounds This Week
• GitHub Copilot competitor Codeium raises $150M at a $1.25B valuation

Money for Math

Harmonic , an AI platform focused on developing Mathematical Superintelligence (MSI), has secured $75 million in a Series A funding round . The round was led by Sequoia Capital with significant participation from Index Ventures and additional backing from Era Funds , GreatPoint Ventures , and others, including Nikesh Arora and Jared Leto. The latest funding brings Harmonic's valuation to $325 million.

MSI represents a breakthrough in artificial intelligence, with capabilities in mathematics that surpass human proficiency. Harmonic aims to accelerate the development of MSI to unlock advancements in quantitative fields such as software engineering, industrial design, and medical technology. Harmonic’s current model, Aristotle, achieves a 90% success rate on MiniF2F, a formal mathematics benchmark.

Sequoia Capital partner Andrew Reed will join the board, while Index Ventures ' Jan Hammer will participate as an observer. The funding will be used to scale Harmonic's team and drive the growth of MSI, as the company seeks talent in research, engineering, and mathematics.

Other Stuff

1. Picus Security Raises $45 Million to Spearhead New Era of Adversarial Exposure Validation
2. Cyber startup Torq’s $70M funding pushes 2024 total to $112M amid triple-digit growth
3. GovTech Platform Second Front Systems Raises $70 Million in Series C Funding Led by Salesforce Ventures
4. Embedded Systems Security Platform RunSafe Security Raises $12M in Series B
5. Non-Human Identity Security Platform Aembit Raises $25 Million
6. Deedy Das 's tweet on valuations vs. revenue caught my eye -

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