The startup’s new round led by Menlo Ventures surprised some industry insiders due to its form — a special purpose vehicle — and its function: helping, in part, to price bets by giants Amazon and Google.
By Alex Konrad and David Jeans, Forbes Staff
While artificial intelligence startup OpenAI reportedly ended the year discussing a fundraise at a valuation of $100 billion or more, one of its leading challengers, Anthropic, was accepting a round of its own. Appearing almost modest in comparison, Anthropic was raising $750 million in new funding that would nearly quadruple its valuation to $18.4 billion.
New details of the unusual round, which remains in progress, reveal how lead investor Menlo Ventures used an increasingly popular tactic to jump to the front: a special purpose vehicle, or SPV. The impetus to do the round, according to multiple sources, came from an opportunistic Menlo seeking to double down on a position in one of AI’s leading unicorns ahead of a potential larger round later in 2024, once Anthropic’s revenue had grown. For a previously small shareholder, it was a power play. For Anthropic, a painless way to burnish its war chest amid a hiring and product race.
Anthropic hadn’t been planning to do a round at the end of 2023 at all: the startup had previously signaled to interested investors that it preferred to wait until the second half of 2024 to make a formal fundraising push, according to four people with knowledge of the process. But Menlo’s offer made sense: the company gained a cash infusion at a critical juncture with minimal fuss, while also formalizing terms for two others promised by key cloud computing partners, Amazon and Google.
Some investors were caught off guard by Menlo’s aggressive move. “We complained to the company, but the company just has so much demand for the product,” said one existing investor. “And they apologized because they don’t have time.”
On Tuesday, Menlo Ventures disclosed the SPV, called Menlo Inflection AI Partners, in a regulatory filing, saying the firm planned to raise $500 million for the round. The additional $250 million comes from Menlo’s own funds and contributions from insiders, a source with knowledge confirmed. It is also expected to include pro rata for investors that have such rights — including, one source said, Spark Capital, the venture fund with the only seat on Anthropic’s board of directors. Other shares are earmarked for Anthropic employees, per two sources.
Anthropic declined to comment in response to detailed questions about the round. Menlo Ventures and Spark Capital both declined to comment. The Information previously reported the first word of the round, while Semafor reported the use of an SPV.
The origins of Anthropic, which is known for the large language model and ChatGPT challenger Claude 2, are in research; Amodei is not known to enjoy fundraising, according to multiple sources (though perhaps few founders are). One of Anthropic’s technical leaders told investors that outsourcing the fundraising to Menlo had given them more time to code, said one source. “It’s about saving time,” the person, who was not authorized to speak, added. “Here’s inbound interest that can get a round done at a threshold that’s interesting, and figure the rest out later.”
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According to several peers, Menlo’s aggressive move appeared an opportunity to more closely associate with Anthropic at a stage at which it wouldn’t otherwise be able to serve as power broker. While AI has become a stated focus area of the firm’s most recent funds, VC firms typically can’t invest more than 10% or 15% of a fund into any one company. Given Menlo’s most recent fund sizes — it announced funds totaling $1.35 billion in November — it would not have been able to invest a $750 million round by itself. But by using an SPV Menlo could invest as much as it desired, then channel the opportunity to its own limited partner investors, and other allies.
Menlo also benefits further from financial upside on those investments it secured through the form of fees and carried interest. SPVs often include preferential terms for a VC’s own backers, and a source told Forbes that’s the expectation with the Anthropic round. On the flip side, other investors without legal ‘pro rata’ rights to insist on inclusion in the round would be forced to go through Menlo if they wanted to invest — which may be impossible since some firms can’t invest in another’s SPV.
Menlo isn’t the first firm to turn to SPVs for later-stage deals: Thrive Capital reportedly has employed the vehicles for several deals, including a recent OpenAI tender offer. But as the lead check in a new equity round, not a secondary sale, the tactic is still eyebrow-raising for some. One investor with knowledge of Anthropic’s round argued that using an SPV is increasingly necessary as startups raise massive funding rounds. “Most firms can’t write a check that big,” the source noted. “Maybe in past years you had SoftBank, but that shop has closed up.”
For Anthropic, the most immediate benefit is quick cash. Anthropic employed about 300 people as of a December report; the company’s currently looking to boost headcount by about 20%, with just under 60 open roles available on its website, including nine in engineering and 10 in research. While sales projections have increased rapidly in recent months, two sources said, much of that revenue remains unrealized. Waiting to raise additional funding later could come at more favorable terms to the company, the founder of another AI unicorn, who asked to remain anonymous, noted.
Then there’s the question of Anthropic’s agreements with Amazon and Google, both of which committed in the fall to pour billions into the company. In September, cloud giant Amazon announced a partnership with Anthropic that included an investment of up to $4 billion; the next month, Google, which had previously invested in Anthropic’s $450 million funding round in May 2023, committed to another $2 billion.
Google’s investment is straightforward: a $500 million disclosed first piece, or tranche, is already Anthropic’s to spend, and converts into the Menlo-led round. Two additional tranches of $750 million are to be invested at time intervals independent of milestones or share prices, a source with knowledge said. Google didn’t respond to several comment requests.
Amazon’s investment, disclosed in a quarterly filing, included a $1.25 billion deployed in September in the form of a convertible note that converts in this round. Amazon also “[has] an agreement,” the company wrote, to invest up to $2.75 billion in a second note that would expire in Q1, 2024. A source with knowledge elaborated that either Anthropic and Amazon must decide on March 29 — the last business day of the first quarter — to trigger the larger, second note, which would then convert into a future funding round.
Concurrently, Amazon Web Services signed a partnership with Anthropic by which the AI startup promised to make the cloud leader its primary provider for future model development, as well as make those models available to AWS customers.
In addition, Anthropic is committed to spend a certain amount over five years with AWS as part of the agreement, a source with knowledge said. Amazon referred reporters to its most recent 10-Q filing, which noted: “We also have a commercial arrangement primarily for the provision of AWS cloud services and chips.” The company declined further comment.
