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Microsoft to Pay Inflection AI $650 Million After Scooping Up Most of Staff

Microsoft to Pay Inflection AI $650 Million After Scooping Up Most of Staff
The Inflection logo on a smartphone arranged in New York, US, on Thursday, Aug. 17, 2023. Inflection AI committed to adopting transparency and security measures at an event with President Biden at the White House in July.

(Bloomberg) -- Microsoft Corp. has agreed to pay Inflection AI $650 million, largely to license its artificial intelligence software, alongside its move earlier this week to hire much of the startup’s staff, according to a person familiar with the transaction.

Microsoft stunned the AI world on Tuesday with an announcement that it had hired Inflection’s co-founders Mustafa Suleyman and Karén Simonyan, along with most of the startup’s 70 employees. The unusual deal, first reported by Bloomberg News, resembled an “acqui-hire” — but without an acquisition. Some legal and industry experts have suggested that Microsoft’s Inflection deal might still spark antitrust concerns with US regulators, who are increasingly scrutinizing Big Tech’s AI investments and partnerships.

Now, with a much smaller staff, Inflection is trying to offload some of its compute capacity, or access to computing power that can be used for tasks like training AI models, according to people familiar with the matter, who spoke on condition of anonymity to discuss private information. The company is seeking a partial refund from its cloud computing partner CoreWeave, one of the people said. The step could reduce costs related to building AI models as Inflection shifts to an enterprise rather than consumer business model.

As part of the deal, Microsoft will pay $620 million to license Inflection’s AI models and  around $30 million for waiving any legal rights related to the mass hiring, according to one person. The financial terms were previously reported by The Information.

Microsoft and CoreWeave did not immediately respond to a request for comment. Inflection AI declined to comment.

The deal will make Inflection’s investors whole, as Bloomberg previously reported, with a modest return on investment. However, those investors aren’t immediately expected to reap big rewards on what once appeared to be an AI rocket ship, valued at $4 billion after raising $1.3 billion last year.

As investor interest in chatbots surged last year, Inflection debuted a bot named Pi — positioned as a kind of personal assistant that was nicer and more reliable than competitors. But Suleyman told Bloomberg this week that Inflection had not succeeded in finding an effective business model.

As the startup plots a new course, Reid Hoffman, a VC and a Microsoft board member, will stay on at Inflection as a director and co-founder. The new CEO will be Sean White, who previously served as the chief research and development officer at Mozilla.

In a LinkedIn post Tuesday, Hoffman said it was a “good day for everyone involved in Inflection.”

Inflection will also retain its proprietary technology. In a blog post on Tuesday, Inflection said it was well positioned to serve companies including Microsoft. “Our success at training, tailoring and improving the performance of large AI models makes us uniquely well placed to be the AI platform for businesses around the world,” it said.

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