In this one, I cover Mistral.ai's eye-popping funding round of $113M at a valuation of $260M.
Generative AI, a technology capable of producing creative content and processing unstructured data at unprecedented speeds, is poised to boost productivity across all sectors. With an estimated growth rate of 35% per year, this industry is projected to reach $110B by 2030. There is a lot of noise in the Generative AI market about the funding that Mistral.ai has snagged. It's been just four weeks since the company was set up, and it still needs an MVP. It does have a team of ex-DeepMind and Meta AI superstars, though.
As luck would have it, we have the strategic memo that got them the funding; check this >>LINK:
After reading the strategic memo that the Mistral team prepared, here is my take on it:
Clearly, there are exciting times ahead as the team embarks on a transformative journey with mistral.ai. It is positioning itself as a European leader set to revolutionize the generative AI industry.
As a European contender, mistral.ai aims to break the US-dominated oligopoly in the generative AI market. Their mission is to guide the new industrial revolution, enhancing productivity and creativity with AI.
Mistral is committed to addressing the market's data privacy and integration concerns. Unlike the closed technology approach adopted by current players like OpenAI, mistral.ai will offer an open approach, providing businesses with access to the internals of their models and ensuring data security and privacy.
Their superstar team, composed of lead researchers from DeepMind and Meta, is ready to drive innovation in the field. They aim to develop and integrate state-of-the-art models into the European industry and beyond. This mission needs to be more detailed to be credible.
Their roadmap for the next year includes training two generations of models and developing business integration in parallel. Mistral is focused on creating the best open-source standard models and customizing them for business needs. There is a school of thought that Open source is the way to go when it comes to model development, but the monetization model remains to be seen.
Mistral aims to co-build integrated solutions with European integrators and industry clients. This means reliance on a partnership approach and complex data use agreements.
From a financial, market, and strategic perspective, here are some potential shortcomings of the pitch memo:
Financial:
1. High Capital Expenditure: The memo outlines a significant investment in computational power and data acquisition. However, it needs to provide a detailed financial plan or budget for these expenditures. It also needs to be clarified how the company plans to sustain these costs over time, especially given the rapid pace of technological advancement in AI. The cost of AI model development is dropping rapidly, and the question is, are the current investors just paying for renting hardware that will get cheaper in 18-24 months?
2. Revenue Model: The memo needs to articulate the revenue model clearly. While it mentions licensing and partnering with integrators, it doesn't specify pricing, potential revenue streams, or profitability.
3. Future Funding: The memo mentions a need for a significant Series A round of $200M, but it needs to provide a clear strategy for attracting this level of investment. It's also clear how the company plans to sustain itself financially once this funding is secured.
Market:
1. Competitive Landscape: The memo acknowledges the existence of strong competitors like OpenAI but needs to provide a detailed analysis of the competitive landscape. Google, with its Bard model, is not too far behind, and neither can Meta be, with advanced versions of its language model LLama.
2. Market Adoption: While the memo outlines the potential of generative AI, it must provide a clear market adoption strategy. How the company plans to convince businesses to adopt its technology needs to be clarified, especially given the potential data privacy and integration concerns. Open AI has taken a giant leap forward with 100M+ users; this is a high bar to cross.
3. Geopolitical Risks: The memo identifies the company as a European contender in a US-dominated market. However, it doesn't address potential geopolitical risks or regulatory challenges that could arise from this positioning. For example, US or China could declare AI as a protected space and prevent Mistral from accessing their respective markets
Strategic:
1. Open-Source Strategy: While an open-source approach can foster innovation and community engagement, it also presents risks. The memo must address how the company plans to protect its intellectual property or prevent competitors from leveraging its open-source technology.
2. Talent Acquisition and Retention: The memo mentions the need for a highly skilled team but doesn't provide a clear strategy for attracting and retaining top talent in a competitive market. Google and Meta have the option of deploying valuable publicly traded equity that Mistral does not have.
3. Product Development: The memo outlines a roadmap for developing two generations of models but needs to provide specifics about these models or how they will meet market needs. It also needs to be clarified how the company plans to balance its focus on product development with its business development efforts. Funding constraints bring the best out of a startup. Having too much capital could be a problem in terms of hitting deadlines and driving innovation.
While the memo outlines an ambitious vision for mistral.ai, it must include some specifics and strategic details to provide a more comprehensive understanding of the company's financial viability, market positioning, and strategic direction.
I would love to get my hands on the deal memo the investors wrote! Are they placing a bet on a hot technology without understanding the details, or is it a genius move? Time will tell.
That is my two cents from a purely business point of view. Let me know if you agree or disagree.
