Do folks think that this was utter negligence by the VCs, or just a pump and dump?
Notice how (aside from MS) most participants were not experienced Enterprise SaaS or AI/ML investors.
Startups will always carry a risk, and VCs are not betting that the company will be asymptotically good, just good enough to make an exit.
This is a misunderstanding of VC investment. Any competent VC expects most of their investments to go to zero. They're hoping a small percent of their investments will make up for the losses. The goal of a decent VC isn't to avoid bad investments so much as it is to make sure they get one good investment. A good investment in AirBnB/Google/Facebook will make up for dozens of speculative bets that go to zero.
I'll be doing a linguistic nit pick now, as I felt it was a bit harsh to label my statement as a misunderstanding.
The bet is still on each investment to have a good exit. With the implied assumption that betting is a probabilistic game.
The VP of AI was Craig Saunders, the same person who helped create Amazon Alexa. The problem is, they ran out of money. $500 million sounds like a lot, but it's not even close to what you need to build and train a real LLM. You need billions. Most people just don't realise that.
See: https://www.businesswire.com/news/home/20240611122778/en/Bui...
Seems like a bad bet that went south.
Almost definitionally, VCs are investing someone else's money (the people providing the capital are called the "limited partners" (LPs); the VCs who raise and invest the money are "general partners" (GPs).) The LPs are often pension funds, university endowments, and charitable organizations.
Yes, GPs do typically have a capital contribution requirement, but it's generally in the area of 1% of the fund, so the vast majority of what VCs are investing is other people's money, for which they definitely have fiduciary responsibility.