TheChek News Flow

OpenAI’s $6.6 billion capital raise and startups’ high computing costs have sparked new funding discussions between AI startups—including xAI, Anthropic, Perplexity and ElevenLabs—and investors hoping to kick-start deals. In some cases, pressure to close investments before the holiday lull sets in has added urgency.

One of the latest to line up new capital is Writer, which develops large language models and software to make it easier for companies to build AI apps. The San Francisco startup is raising between $150 million and $200 million at a $1.9 billion valuation, according to two people close to the company. The money would more than double its valuation from its last round a year ago.

Elon Musk’s xAI, maker of the Grok chatbot, is likely to raise again by the end of the first quarter and is already receiving interest from prospective backers, investors in the company said. It raised $6 billion at a valuation of $18 billion only five months ago.

And Anthropic, OpenAI’s biggest startup rival, recently floated a $40 billion valuation in early fundraising talks, The Information earlier reported.

Driving these discussions is the intense need to fund the costs of building and running AI models and hiring sought-after researchers.

“If you’re going to compete, you have to have the capital to get the talent and the compute to make that happen,” said Enrique Salem, a partner at Bain Capital Ventures and the former CEO of cybersecurity company Symantec. “Otherwise you’re going to miss the opportunity.”

Some investors are approaching founders before the companies set out to raise their next funding rounds—a practice known as preempting in venture capital lingo—so they can elbow out their VC competitors.

Perplexity, creator of an AI search engine, has recently received such inquiries, according to a person close to the company. The two-year-old startup in June raised $250 million at a valuation of $3 billion.

The pace of AI deals is reminiscent of the 2021 fundraising boom, said Nathan Benaich, founder of Air Street Capital, which invested in Poolside, a specialized LLM to automate coding that announced a $500 million fundraise last week.

He expects that many founders will take advantage of investor interest, even if they were not planning to raise money now. AI founders are asking themselves, “‘Why don’t we strike while the iron is hot?’” he said.

What distinguishes this wave of deals from those during the 2021–22 low-interest-rate period is that dealmaking is so heavily concentrated in AI startups. Those developing foundational models frequently need to raise money because of the exorbitant costs of renting the specialized graphic processing units required to run these models.

Model developers are on a “constant cyclical fundraising journey,” said Benaich. “Anytime a new big model comes out, they clearly have to use that as leverage to raise additional capital for the next run.”

Funding discussions among these AI startups follow OpenAI’s high-profile fundraising, which closed last week after many weeks of negotiations. Investors led by Thrive Capital, including deep-pocketed backers such as SoftBank, Nvidia and Microsoft, awarded the ChatGPT maker a $157 billion valuation.

The size of that round underscored strong demand from investors for these startups, despite the billions of dollars in losses OpenAI and others are incurring. And compared with OpenAI’s valuation of $157 billion, some of these rivals may look cheap. What’s more, if they don’t secure term sheets by Thanksgiving, many companies will be forced to wait until January, investors said.

Sales Drive

Investors say they’ve also been encouraged by the fact that more startups are generating revenue from their AI-powered products, though profits may be years away.

OpenAI, for instance, has told investors it expects revenue to nearly triple next year, to $11.6 billion, and then double again in 2026. Anthropic has told investors it’s on track to generate $1 billion in annualized revenue—the last month’s revenue multiplied by 12—by year end.

“The revenue traction that AI model makers are showing is enticing more people to convert from nonbelievers to believers,” said Benaich of Air Street Capital.

Even startups with far lower sales numbers can still attract investors if they show strong growth.

Writer, which sells subscriptions to its tools, was generating $40 million in annual recurring revenue—the subscription revenue expected over the next 12 months, based on the current monthly subscription revenue—by the end of September, up from $30 million at the end of June, the people involved in the round said. It projects it’ll reach $50 million in ARR by the end of the year, they said.

Iconiq Capital, Radical Ventures and Premji Invest are leading Writer’s latest round, the people said. Salesforce Ventures and Singapore’s GIC are also participating, one of the people said. Writer previously raised $126 million.

Perplexity, which sells subscriptions to an AI-powered search engine, recently passed $45 million in annual recurring revenue, up from $20 million in May, according to a person with direct knowledge of the matter.

While revenue growth may be enough to attract more funding, it may not be enough to survive, given the high costs of training AI models and increasing competition from large public tech companies including Meta Platforms and Google.

Already, founders from Inflection, Character, Adept and Covariant—all developers of foundation models—have resigned to work at big tech companies licensing their technology.

Perplexity’s management, led by co-founder and CEO Aravind Srinivas, talked to at least four companies last year about a potential takeover because the startup’s leaders were concerned about costs and intense competition from search giant Google, The Information previously reported.

For now, however, investors seem willing to overlook those pressures. ElevenLabs, which develops models to generate audio from text and to handle dubbing, is in talks with investors including DST Global to raise money at a multibillion-dollar valuation, according to an investor in the company, up from $1 billion in January.

That’s despite the fact that companies such as Google are introducing competing free services. ElevenLabs didn’t respond to a request for comment. TechCrunch earlier reported on ElevenLabs’ fundraising talks.

These deals would add to the more than $33.5 billion venture investors have poured into generative AI startups since early 2022, according to The Information’s Generative AI Database (That figure rises by more than $20 billion if corporate investors like Amazon are included.)

Some deals have left early AI investors with returns that are far from the payouts of at least 10 times the investment venture investors seek.

When Google agreed to hire Character’s founders, payouts to shareholders amounted to about 2.5 times the price paid by investors such as Andreessen Horowitz and Greycroft in a funding round last year. Some investors in the two major rounds of Inflection AI, which had raised $1.5 billion from Greylock Partners, Dragoneer Investment Group and other investors, received even less.

Russian gunrunner Viktor Bout was traded in 2022 for U.S. basketball star Brittney Griner

Viktor Bout, the Russian arms dealer known as the “Merchant of Death,” walked out of a U.S. jail almost two years ago in a trade with Moscow for U.S. basketball star Brittney Griner. Now he is back in business, trying to broker the sale of small arms to Yemen’s Iran-backed Houthi militants.

The 57-year-old, whose life reportedly inspired the 2005 Hollywood movie, “Lord of War,” starring Nicolas Cage, spent decades selling Soviet-made weapons in Africa, South America and the Middle East before being arrested in 2008 in a U.S. law-enforcement sting operation.

Since his release, Bout has joined a pro-Kremlin far-right party and won a seat in a local assembly in 2023, seemingly turning the page on his days as an arms broker. But when Houthi emissaries went to Moscow in August to negotiate the purchase of $10 million worth of automatic weapons, they encountered a familiar face: the mustachioed Bout, according to a European security official and other people familiar with the matter.

The potential arms transfers, which have yet to be delivered, stop well short of the sale of Russian antiship or antiair missiles that could pose a significant threat to the U.S. military’s efforts to protect international shipping from the Houthis’ attacks.

The Biden administration has been worried that Russia might provide the Houthis with such advanced weapons to retaliate for Washington’s support of Ukraine, but there is no evidence that those missiles have been sent, or that Bout is involved in such a deal.

Still, even small arms shipments to the Houthis would be opposed by Washington, which has designated the Yemen militants as a terrorist group.

Arming a belligerent in the Middle East conflict would also mark an escalation for Russia, which has been strengthening security ties with Tehran but has generally stayed away from the confrontation between Israel and its Iran-backed foes.

Steve Zissou, a New York attorney who represented Bout in the U.S., declined to discuss whether his client had met with the Houthis.

“Viktor Bout has not been in the transportation business for over twenty years,” Zissou said. “But if the Russian government authorized him to facilitate the transfer of arms to one of America’s adversaries, it would be no different than the U.S. government sending arms and weapons of mass destruction to one of Russia’s adversaries as it has sent to Ukraine.”

In an interview with TASS, the Russian state-owned news agency, following the publication of this article, Bout called the claim he was selling arms to the Houthis an “unsubstantiated accusation.”

He didn’t address whether he was back in the arms business.

The small arms deal that Bout was said to have been brokering was with two Houthi representatives who had traveled to Moscow under the cover of buying pesticides and vehicles and visited a Lada factory, according to the people familiar with the matter.

The people familiar with the deal didn’t know if the deal was being negotiated at the Kremlin’s behest or merely with its tacit approval. While the Houthis have been seeking Russian-made weapons, The Wall Street Journal couldn’t determine the specific source of the planned supply.

A Houthi spokesman declined to comment. The Kremlin didn’t return a request for comment.

“We’ve seen the article,” Kremlin spokesman Dmitry Peskov said on Monday, according to TASS. “We are inclined to categorize it as fake news or an information attack on our elected representatives.”

The first two deliveries will be mostly AK-74s, an upgraded version of the AK-47 assault rifle. But during the trip, Houthi representatives also discussed other weapons the Russian side might potentially sell, including Kornet antitank missiles and antiaircraft weapons, according to the European official and other people familiar with the matter.

The deliveries could start as early as October to the port of Hodeidah under the cover of food supplies, where Russia has already carried out several grain deliveries, they said.

When Bout was released in the December 2022 prisoner swap, White House officials described it as a difficult decision but the only way to get Griner out of a Russian penal colony. They emphasized that Bout had already served 12 years in U.S. prisons.

National-security adviser Jake Sullivan said at the time that the U.S. government had done an assessment of the risks of Bout’s release before the exchange and had concluded they were acceptable.

“We believe we can manage those challenges, but we will remain constantly vigilant against any threat that Viktor Bout may pose to Americans, to the United States going forward,” Sullivan said. “I would just point out that there is no shortage of arms traffickers and mercenaries in Russia.”

A spokesman for the National Security Council didn’t respond to a request for comment on Bout’s current activities.

Since his release from prison, Bout has often appeared on Russian television as a commentator on Russian politics and a critic of the U.S., which he has said is determined to dismantle Russia. He has also been cited occasionally in the Russian media as an expert in the weapons trade.

He said that he kept a portrait of Russian President Vladimir Putin on the wall of his cell throughout his confinement in the U.S., and has strongly supported the invasion of Ukraine.

Sales to the Houthis would extend Bout’s decadeslong career in selling arms to some of the world’s most controversial customers. Born in 1967, in Dushanbe, Tajikistan, then part of the Soviet Union, according to official records, Bout served as a military translator, learning French, English, Arabic, Farsi and Portuguese. He was sent to assist Angolan forces during a 1980s civil war.

After the Communist bloc dissolved in 1991, he purchased Russian military cargo planes and used them to transport United Nations peacekeepers in Africa. Bout first came in the public eye after the U.S. in 2005 sanctioned him for trading weapons for diamonds with Charles Taylor, a former Liberian president and convicted war criminal. U.N. experts also accused him of violating international arms embargoes on Angola and the Democratic Republic of the Congo.

Arrested in Thailand in a 2008 sting operation led by U.S. Drug Enforcement Administration agents posing as Colombian leftist rebels, he was convicted in 2011 of conspiring to kill Americans and attempting to sell weapons to Colombian rebels. He was sentenced to 25 years in prison.

The Houthis have repeatedly attacked international shipping and have launched drone and missile attacks against Israel. The U.S. and Israel have carried out airstrikes in response, including on Friday when the American military struck 15 Houthi targets.

MicroRNA Pioneers Win Nobel Prize in Medicine

Americans Victor Ambros and Gary Ruvkun discovered tiny molecules that affect gene regulation

The Nobel Prize in medicine was awarded to Victor Ambros and Gary Ruvkun for the discovery of microRNA, tiny molecules that help control how genes are expressed.

Their findings unlocked new areas of research into the roles these molecules play in human health. Researchers are exploring microRNA treatments for cancer, hepatitis and heart disease.

Ambros and Ruvkun were postdoctoral fellows in the 1980s in the laboratory of biologist Robert Horvitz, who won the Nobel Prize in 2002 for his research in gene regulation. In Horvitz’s lab, they studied the roundworm C. elegans to better understand the role genes play in the development of different cell types.

Researchers already knew genes are copied to make molecules called mRNA that are translated into proteins that help determine cell type. The discovery of microRNA added new understanding to how genes can be turned on or off.

Ambros, with the help of research assistant Rosalind Lee—who also happens to be his wife—and geneticist Rhonda Feinbaum, discovered the first microRNA in 1993. It appeared to be responsible for a mutation in the worms he studied in the lab.

Ambros has said he wondered whether the finding was limited to worms. But a few years later Ruvkun, who was a close friend of Ambros, found another example of microRNA, one in humans and many other creatures.

Researchers have since found microRNA in animals, plants and some viruses. Hundreds have been found in people. The molecules can bind to mRNA in cell cytoplasm and destroy that section of mRNA or preserve it for use later.

The Nobel committee on Monday said it had reached a sleepy Ruvkun, a genetics professor at Harvard Medical School, over the phone before the prize announcement around 5:30 a.m. ET.

“The call from Stockholm is mythic in the world of science,” Ruvkun said in an interview with the Swedish organization that awards the Nobel Prize shortly after learning of his win. Asked if he could send an in-the-moment photo of himself, Ruvkun replied: “Oh god, I’m having a bad hair day.”

Thomas Perlmann, the committee’s secretary, said he left a voicemail for Ambros, a professor at UMass Chan Medical School in Worcester, Mass.

Ambros said at a press conference that he was sleeping and got the news from his son, who had been reached by the Nobel committee.

“I was astonished and surprised, delighted. Everything you might expect,” he said.

Ambros said he was looking forward to celebrating soon with his friend.

Ruvkun, Ambros and British geneticist David Baulcombe in 2008 won the Albert Lasker Basic Medical Research Award for their research into microRNA. Many recipients go on to win Nobels.

Cerebras IPO is a bet that bigger isn’t better

The upstart chipmaker hopes to take on industry champ Nvidia with its larger-than-life AI wafers

The past seven decades of microchip production have been a race to get smaller. Cerebras Systems, which hopes to break a drought in initial public offerings, is instead going big. Its Frisbee-sized chips are, it says, as fast as it gets at handling super-complex artificial intelligence models. In that sense, size may be on Cerebras’ side. In another, the opposite is true.

Cerebras hopes its jumbo wafers can take on industry champ Nvidia. The idea is that by plonking more memory and processing power on a larger area, data can be moved, stored and crunched faster and with less power consumption. The company’s tests suggest it enables Meta Platforms’ Llama 3.1 model to spit out answers about 20 times faster than rivals.

It is not just its speed that is unusual. The lossmaking firm gets almost all of its revenue from a single customer, Abu Dhabi’s G42. Large prepayments from that and other customers make up the lion’s share of its cash. If G42 makes a sufficiently big order in future it gets more shares at a discounted price, diluting IPO investors.

A further risk could come from irritating a colossus. Nvidia is the go-to for AI, and engineers are used to using its own proprietary programming language. Cerebras warns in its filing that large rivals could pressure their customers to give it the cold shoulder. They might not need to: anyone splurging vast sums on building bots may favour a supplier soundly tested in the field. Switching isn’t simple: using Cerebras chips means also using its other hardware and cooling systems.

Nvidia isn’t the only giant with sway over Cerebras’s future. Both firms’ chips are manufactured by the ubiquitous Taiwan Semiconductor Manufacturing Company. But where Nvidia is a big influential customer of TSMC, Cerebras is a tiny one. Semiconductor supply chains are long and brittle. The company has been stuck with unsold inventory before, and warns it may again.

Being a flea on the ankle of a giant could pay off: a little more business would go a long way. Assume Cerebras can keep up its recent habit of doubling revenue each six months, and it would be in line for $400 million or so this year. Put that on Nvidia’s 25-times multiple, and it is worth $10 billion.

Given the paucity of tech IPOs and the heat around anything AI, there is every chance investors might entertain that kind of valuation. But given the unusual risks, Cerebras would be best keeping its price ambitions smaller than its outsize chips.

Tennet taps bankers for potential €20bn German power grid IPO

Dutch government exploring listing or sale of German unit after failed sale to Berlin

Dutch state-owned electric grid operator Tennet has tapped investment bankers to explore an initial public offering for its large German subsidiary, seeking to sever its links to the capital-hungry business after talks to sell it to Berlin collapsed.

Tennet has lined up bankers at Goldman Sachs, Morgan Stanley, ABN Amro and Deutsche Bank to plan a potential listing for the German unit, which could be valued at more than €20bn, according to people familiar with the matter.

The Dutch government has for years tried to sell the German grid operations, as it is reluctant to invest billions of Dutch taxpayers’ money into the modernisation of German electrical infrastructure.

Tennet invested €4.8bn in German infrastructure in 2023, compared with €2.9bn in its home market.

Germany’s energy grids play a key role in the government’s plan to increase the share of renewable energy to 80 per cent by 2030, up from 52 per cent last year.

More decentralised power generation and bigger swings in electricity production mean that grid operators will have to invest billions of euros into energy distribution infrastructure over the coming years.

Big Four firm EY puts the investment needs of all German electricity grids at €281bn by 2030.

A plan to sell the unit to the German government at a €22.5bn enterprise valuation fell through earlier this year.

A stock market listing in Frankfurt for Tennet’s German business could now come as soon as next year, the people said. However, they cautioned that Tennet was still exploring a sale of the company and that was a more likely outcome than an IPO.

Regulated utilities such as grid operators have been popular investment targets for insurance companies and infrastructure investors as they operate in markets with high barriers to entry and generate stable and reliable returns.

Bankers at Lazard have been working with Tennet to weigh options for the German business.

Tennet declined to comment. Goldman Sachs, ABN Amro and Deutsche Bank declined to comment. Morgan Stanley, Lazard and the Dutch finance ministry did not immediately respond to a request for comment.

Water demand to soar on conflicts and technology, warns utility boss

Cox chief expects water needs to rise at 10-15% rate a year as company seeks to raise €300mn on Madrid Stock Exchange

Demand for water will soar as conflicts in the Middle East intensify, data centres consume vast amounts of resources and the global population grows, the chief executive of Spanish utility group Cox warned, as he revealed plans for a €300mn initial public offering.

“We’re going to grow on water,” Nacho Moreno said, adding that he expected global water treatment needs to increase annually at a rate of 10 to 15 per cent.

“The water market is one that grows at a double digit compounded annual growth rate, so anywhere between 10 and 15 per cent, which means that in four or five years, it doubles its size.”

At the same time, he expects the gap between water availability and demand to widen by 40 per cent each year.

Cox did not disclose a valuation but plans to price its shares on the Madrid Stock Exchange at a discount to its main rivals, French utility group Veolia and Spanish construction group Acciona.

The company is also targeting a market capitalisation of more than €1bn, according to sources close to the discussions.

The IPO is a primary offering of stock, with a commitment to floating at least 25 per cent of Cox’s share capital as required by Spanish regulations.

Conflicts in the water-scarce Middle East are driving demand for solutions that shore up water supplies, Moreno said.

“In the Middle East, it’s all about water. They’ve got everything else they need. They’ve got the sun to provide clean energy. They’ve got the wind. They’ve got the money to invest. But they lack the water.”

Nacho Moreno: ‘The data centres demand a huge volume of water in order to cool down [servers]’

If Saudi Arabia’s desalination plants were to blow up, for example, the country would run out of water after a few hours, he added. “Water security, given the geopolitical situation, is something which is key.”

To address this, Cox has developed floating desalination plants in the sea that can be moved to secure provisions and supplies.

Another big driver of demand for water is the rapid advance in technology, with the growth of data centres needed to power artificial intelligence and cloud computing. These rely on water-intensive cooling systems.

Data centres are expected to grow exponentially, especially in tech-heavy regions such as the southern US.

“The data centres demand a huge volume of water in order to cool down [servers],” said Moreno. “AI is massively driving the need for both water and energy.” 

Elsewhere, more and more water is needed for human consumption and to irrigate agricultural land as temperatures rise and the number of people to feed around the world grows.

Moreno said that the funds raised from the IPO would be used to secure new long-term agreements for water services, such as desalination and treatment, and to develop renewable energy projects that will power those operations across North America, Spain, north Africa and the Middle East. 

The Madrid-based group expects to tender for contracts for up to 20mn cubic metres of water a day in the next 12 to 24 months across these regions, according to Moreno.

Oil price has climbed over the last week amid fears of escalating conflict in the Middle East

Oil prices on Monday jumped above last week’s high amid mounting fears of escalating conflict in the Middle East.

Brent crude, the global oil benchmark, rose more than 3 per cent to a five-week high of $80.44 a barrel, as Hamas fired rockets at Israel, which launched strikes against targets in Gaza and Lebanon.

The price, which had dropped sharply since early April, had already gained more than 8 per cent last week, the biggest weekly gain since January 2023, driven by Iran’s missile attack against Israel.

Traders are concerned about a potential strike against energy infrastructure in the region that could hinder oil supplies, or disruption in the Strait of Hormuz.

There are signs that hedge funds, many of which had been betting on oil extending this year’s falls, are beginning to adjust their positioning. Funds trimmed their large short bets against Brent and increased their long positions in the week to October 1, in the early stages of last week’s rally, according to ICE data.

However, computer-driven funds that tried to latch on to market trends were likely to have still been betting against oil as of Thursday, according to a model portfolio run by Société Générale.

Israel on Monday marked the first anniversary of Hamas’s deadly October 7 attack. Ceremonies held in southern Israel were disrupted by the group firing rockets into the territory from Gaza. Rockets also set off sirens in Tel Aviv.

The events come amid a fresh offensive by Israeli forces in northern Gaza and follow an incursion by ground troops into Lebanon, where Israel is trading fire with Iran-proxy Hizbollah.

US President Joe Biden on Thursday said Israel had discussed striking Iran’s oil facilities in retaliation for an Iranian missile barrage fired at Israel last week. He later suggested Israel should consider other options.

“If I were in their shoes, I’d be thinking about other alternatives than striking oilfields,” Biden said on Friday.

The Islamic republic exports 1.7mn barrels of oil a day, mainly from a terminal on Kharg Island, about 25km off the country’s southern coast.

Daan Struyven, an analyst at Goldman Sachs, told clients that a six-month disruption, hitting about 1mn b/d, would push Brent up to $85 in the middle of next year if Opec offsets the shortfall. Prices could climb to the mid-$90s without an offset, he forecast.

“Investors are focused on the risk that Israel and Iran may enter a cycle of retaliatory attacks that may escalate into a broader conflict,” Struyven said.