xAI, Elon Musk’s 10-month-old competitor to the AI phenomenon OpenAI, is raising $6 billion at an $18 billion pre-money valuation, according to a reliable source close to the deal. The deal – which would give investors a quarter of the company – is expected to close in the coming weeks unless the terms of the deal change.
The terms of the agreement have already been changed once. As of last weekend, Jared Birchall, who heads Musk’s family office, was telling prospective investors that xAI was raising $3 billion at a pre-money valuation of $15 billion. Given the number of investors asking to get into the deal, those numbers were quickly adjusted.
Says our source, “We all got an email that basically said, ‘It’s now $6 billion to $18 billion and don’t complain because a lot of other people want in.’
Investors who had been lobbying for the deal for months were clueless. Sequoia Capital and Future Ventures, the venture fund co-founded by Musk’s longtime friend Steve Jurvetson, are participating in the round.
Other participants are likely to include Valor Equity Partners and Gigafund, whose founders are also part of Musk’s inner circle, which famously blends the personal and the private. (The approach to these investors was not met. xAI does not have a press function.)
Jurvetson sits on SpaceX’s board and was a director at Tesla until 2020. Gigafund co-founder Luke Nosek, who previously co-founded Founders Fund with investor Peter Thiel, was the first venture investor to write a check to SpaceX and has served on its board of directors ever since. Valor founder Antonio Gracias was an early investor in Tesla. like Jurveston, he is a former director of Tesla and is also on the board of directors of SpaceX.
Our source said it’s not entirely clear to any other investors who is in the deal because of how the commitments were put together. “It’s a Zoom call and it’s just you and Elon and Jared [on the other side] at a table with some engineers.”
The pitch, says this person, is captivating.
xAI’s marketing literature already makes clear that the outfit’s ambition is to connect the digital and physical worlds, but it may not be widely understood that Musk intends to do this by pulling training data from each of his companies, such as Tesla, the SpaceX, The Boring Company and Neuralink are developing computer interfaces that can be implanted in the human brain.
Of course, another one of Musk’s companies is X. The social networking platform has already integrated xAI’s chatbot, Grok, into the platform for a fee months ago. However, that’s just one piece of what Musk is telling investors in what will become an extended virtual cycle.
With Grok, for example, X is both a customer and provides Grok with mass distribution. Ultimately (he goes on the pitch), Grok will receive data from Musk’s other companies, helping him dominate the physical world in potentially endless ways, starting with truly autonomous cars.
Another potential beneficiary would be Tesla’s humanoid robot, Optimus. Today the Tesla robot is still in the lab, but Musk analysts said on a call earlier this week that Optimus will be able to operate at Tesla factories by the end of this year. Even if that timeline turns out to be ambitious, these skilled assistants may be able to do more — and faster than previously thought — if Musk’s overall vision comes to fruition.
Meanwhile, the most immediate beneficiary of xAI’s rising momentum may be X itself. Although the platform has become something of a toxic cesspool in the 1.5 years since Musk bought it and then lost it much of its value, Musk has already made sure that X owns a stake in xAI, so it will benefit from whatever raise the AI outfit sees.
What all this means for OpenAI – which became the fastest-growing startup in history last year – is an open question. Musk has had OpenAI in his sights since the company’s rise began, following the release of the ChatGPT chatbot.
Musk founded OpenAI in 2015 and stepped down from the board in 2018 amid disagreements over the direction of the outfit, which started as a nonprofit and later evolved into a for-profit entity. Since then, Musk has publicly harassed OpenAI co-founder Sam Altman and mocked the brand, suggesting it call itself Closed AI.
Last month, when Musk created the architecture of his early xAI chatbot “Grok-1,” meaning anyone can now download and modify it, the move was another part of his ongoing campaign to distinguish his efforts from OpenAI, which has not shared its secret sauce with the world, and which Musk is now suing.
