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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.