Elon Musk has escalated his ongoing feud with OpenAI, the artificial intelligence company he co-founded in 2015, after revelations that the AI giant asked investors to avoid funding its competitors, including Musk’s own xAI startup.
OpenAI recently completed a record-breaking $6.6 billion funding round at a staggering $157 billion valuation, making it the most valuable startup in the world. The funding round attracted major investors including Thrive Capital, Microsoft, and Nvidia. However, according to anonymous sources speaking with Reuters and the Financial Times, OpenAI included an unusual stipulation in the deal: investors should refrain from backing five of its key competitors.
The list of rivals reportedly includes Perplexity, Glean, Anthropic, Ilya Sutskever’s Safe Superintelligence, and notably, Musk’s xAI, which developed the Grok AI chatbot. This exclusive funding agreement has sparked controversy in the AI industry and drawn sharp criticism from Musk himself.
On Wednesday, Musk responded to posts on X (formerly Twitter) criticizing OpenAI’s request, declaring twice that “OpenAI is evil.” This latest outburst represents another chapter in the increasingly contentious relationship between Musk and the company he helped establish.
The deteriorating relationship between Musk and OpenAI dates back to his departure from the company in 2018. Since then, tensions have escalated dramatically. In February 2020, Musk criticized OpenAI for lacking transparency and commitment to safety. In March 2024, he filed a lawsuit accusing the company of violating its founding principle of building AI that benefits humanity, though he later dropped the suit. Most recently, in August, Musk filed another lawsuit claiming OpenAI executives “deceived” him into co-founding the company.
While exclusive funding agreements are rare, they’re not unprecedented in the tech industry. Venture capitalists noted that companies like Uber and Lyft made similar requests during their pre-IPO fundraising rounds, asking investors not to back rivals for six months to a year, according to a 2015 Wall Street Journal report.
Interestingly, some of OpenAI’s current investors have already backed other AI startups. SoftBank, for instance, has been diversifying its portfolio with investments in AI hardware and software after suffering losses from pre-pandemic bets like WeWork. Neither Musk nor OpenAI responded to requests for comment on the matter.
Key Quotes
OpenAI is evil.
Elon Musk wrote this statement twice on X in response to posts criticizing OpenAI’s request for exclusive funding agreements. This blunt declaration reflects the depth of animosity between Musk and the company he co-founded, marking one of his most direct public attacks on the organization.
deceived
This term was used in Musk’s August lawsuit against OpenAI, where he argued that executives deceived him into co-founding the company. The lawsuit represents Musk’s second legal action against OpenAI in 2024, following an earlier suit he dropped that accused the company of violating its founding principles.
Our Take
This conflict reveals a critical inflection point in AI industry dynamics. OpenAI’s move to restrict investor funding of competitors, while legally defensible, raises ethical questions about market consolidation and innovation. The irony is palpable: a company founded on principles of open AI development is now using financial leverage to limit competition.
Musk’s reaction, though characteristically dramatic, points to legitimate concerns about how dominant AI players might stifle innovation. However, his own track record with xAI and previous conflicts suggests personal grievances may be clouding the issue. The real story here is how venture capital is becoming weaponized in the AI arms race, potentially creating an oligopolistic market structure that could limit diverse approaches to AI safety and development. This trend deserves scrutiny from regulators and the broader tech community, as it may ultimately determine who controls the future of artificial intelligence.
Why This Matters
This development highlights the intensifying competition and consolidation pressures in the rapidly evolving AI industry. OpenAI’s unprecedented $157 billion valuation and its aggressive move to limit investor support for competitors signals how high the stakes have become in the race for AI dominance.
The exclusive funding stipulation represents a strategic shift in how AI companies are approaching competition, potentially setting a precedent for future funding rounds in the sector. This could reshape the venture capital landscape for AI startups, making it harder for smaller players to secure funding if major investors are locked into exclusivity agreements.
The personal dimension of this conflict between Musk and OpenAI also matters significantly. As one of the most influential figures in tech, Musk’s public criticism and legal battles with OpenAI could influence public perception of the company and raise questions about corporate governance in AI development. The dispute underscores broader concerns about whether AI companies are staying true to their founding missions of benefiting humanity, or whether commercial interests are taking precedence. This tension between profit motives and ethical AI development will likely define the industry’s trajectory in coming years.
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Source: https://www.businessinsider.com/elon-musk-mad-openai-asking-investors-not-to-fund-xai-2024-10