Why Mistral is a Takeover Candidate
Earlier today, we published our Generative AI Takeover List of 78 startups that could be acquisition targets. The list includes companies that develop their own models or robots, haven’t raised funding in at least two years, or both. These companies are most likely to face a cash crunch and be open to takeover offers.
My colleagues Stephanie and Rocket highlighted the conundrum for these startups: It’s expensive to build large language models and hardware, and customers are cautious of spending big on AI apps and tools with unproven returns.
A surprising company on the list is Mistral AI, the Paris-based developer of open-source models, founded early last year by alumni of Google DeepMind and Meta Platforms. The startup has found success among investors—and politicians—based in part on the notion of being a European alternative to OpenAI.
In June, Mistral raised $640 million in new funding, bringing its total funding to $1.2 billion, more than all but a handful of AI startups. That funding valued the company at about $6 billion.
Just because Mistral has raised a lot of funding doesn’t mean a takeover is unlikely: LLM developer Inflection, for instance, raised $1.6 billion but effectively sold itself to Microsoft in March—long before it had a chance to burn through that cash.
“We are an independent company and intend to remain so,” a spokesperson for Mistral told Stephanie and Rocket.
Mistral’s founders and researchers have AI expertise that big technology companies covet. Arthur Mensch, its CEO, worked on Gemini and Flamingo, a multimodal model, at Google. Timothée Lacroix and Guillaume Lample, its chief technology officer and chief scientist respectively, worked on the first generation of Meta’s flagship AI model Llama.
But Mistral’s path to revenue and profit is unclear. Its open-source approach to AI means it doesn’t sell access to many of its most popular models, while facing stiff competition from open-source model developers such as Meta.
Mistral generates some revenue by charging users of its application programming interface, but fewer than 10% of users pay for Mistral’s larger models at one of its partners, Stephanie previously reported. Mistral could also generate revenue from helping companies develop AI apps that use its models, the way Germany-based Aleph Alpha does after it slowed efforts to compete against OpenAI in developing advanced models. Mistral hasn’t indicated it is considering that type of business.
It’s also unclear how another major developer of open-source AI, Meta, will make a return on the tens of billions of dollars it is spending on its efforts. Meta, however, rakes in huge amounts of revenue from digital advertising and has bet that its investment in AI will improve its ads business.
The list of companies that could acquire Mistral is short. Amazon seems to have an appetite for license-and-hire deals, having struck them with Adept, a developer of computer-using AI agents, and Covariant, a robotics software startup. Apple has shown interest in M&A too; my colleague Jon previously reported that its executives have met with at least three AI startups about potential acquisitions, and it quietly acquired French AI startup Datakalab in December, French business magazine Challenges reported.
Alternatively, Mistral’s founders could mimic Character.AI’s founders and return to one of their alma maters—Google or Meta—in return for a handsome payout. We could also imagine the startup following Inflection into the arms of Microsoft, especially since Microsoft invested in Mistral in February. A spokesperson for Microsoft said Mistral isn’t a candidate for acquisition. Amazon and Meta declined to comment. Apple and Google did not respond to requests for comment.
Mistral could also pursue a strategic partnership involving more financing, revenue sharing or joint research efforts, like Cohere has discussed with Snowflake or OpenAI has inked with Microsoft. In the leadup to its deal with Google, Character held research partnership talks with Google, Meta, OpenAI and xAI.
Mistral’s valuation may be a tough pill for potential acquirers or strategic investors to swallow, though. Inflection, Adept and Character were valued closer to $1 billion when they struck their deals. It could be challenging for a Mistral acquirer to pay a licensing fee large enough to please shareholders and small enough to avoid regulatory scrutiny.
But any deal still may face heat from regulators in both the U.S. and the EU. Mistral is one of Europe’s few AI leaders, even more so after three of the five founders of France’s H left the startup and Germany’s Aleph Alpha lowered its ambitions.
Europe’s top antitrust regulator said in February it would examine Microsoft’s investment in Mistral. And in an interview with CNBC in May, French president Emmanuel Macron said he “would prefer [Mistral] to become independent and grow on their own.”
Mistral on Tuesday released two models called les Ministraux, which are small enough to run on devices such as phones, instead of in the cloud. It said those models perform better on certain benchmarks than similarly sized ones from competitors. That performance, and the success of other models from Mistral, is another reason why it could be a desirable takeover target.
Bottom line: Don’t be surprised if Macron doesn’t get his wish.