OpenAI’s first VC backer Khosla Ventures weighs in on the future of generative A.I.

February 2, 2023, 12:12 PM UTC
Updated February 2, 2023, 10:27 PM UTC
OpenAI released ChatGPT to the public in 2022.
Frank Rumpenhorst—Getty Images

OpenAI may be the most buzzy startup in the private markets right now, but Samir Kaul, founding partner and a managing director of Khosla Ventures, won’t say much about his firm being the first VC to back the project.

“We made a bet. And it was a large bet for us,” Kaul told me via video chat from one of Khosla’s conference rooms yesterday.

It was early 2019 when Khosla Ventures first invested in OpenAI, the Sam Altman-led startup that last month landed a multibillion-dollar investment from Microsoft. At the time Khosla invested, OpenAI was structured as a nonprofit organization, raising some questions over how exactly such an investment would have been structured. LinkedIn co-founder Reid Hoffman, who has been a partner at Greylock Partners since 2009, also invested in OpenAI at the time, though he did so personally through his foundation. (A Greylock spokeswoman says the firm doesn’t invest in nonprofits.)

Kaul discussed Sam Altman as an entrepreneur: Khosla partners are “big fans of Sam Altman,” he says, and “anything that Sam does, it automatically elevated to the top of the pile.” Kaul was also quick to point out that it was Vinod Khosla, the Kleiner Perkins veteran behind the eponymous firm he started in 2004, who led the investment, although Kaul noted the whole team worked on it and that the firm doesn’t do deal attribution.

“I don’t think about that,” Kaul said when I asked when he thought OpenAI might become profitable. He added: “What I’m more interested in is what are all the great applications of what they’re going to do? How many verticals can they touch? How many different applications and products can they do? And can they continue to hire and attract and retain the best and brightest scientists? So far, that’s all quite promising.”

While Kaul wouldn’t go into too many specifics, including how much Khosla has invested in OpenAI or whether the firm invested subsequently, Kaul has plenty to say about the opportunity for the technology itself and where he ultimately sees all this headed. He believes generative A.I. will ultimately influence every sector—from enterprise to consumer to financial services. And, of course, to health care—where Kaul has spent much of his career. (Kaul has started several companies, and he used to work for Craig Venter, who is known for pioneering the use of automated gene sequencing. Kaul helped sequence the first plant genome to ever be sequenced: a mustard seed called Arabidopsis thaliana.)

Health care is where Kaul really lights up when talking about the future of A.I.

“So when you go to the doctor, you probably notice your physician has your folder that he or she has probably looked at for maybe 13 seconds before you come in, and they’ll ask you a bunch of questions while they’re reading through the form,” Kaul says. They haven’t prepped, he goes on. They are seeing, just now, that you had a vaccine last year, but not this year. You had this surgery, this illness, and here is your family history, and here are the meds you take. “They’re flipping through it right there because they give you about six minutes, right? You’re in and out, because they know that’s expensive. They have to pay tuition. They have to pay loans. I got to get malpractice insurance to pay the overhead of wherever the hospital is or whatever practice they’re at. It’s not easy.”

Physicians can’t digest all that data in seconds, he argues, and they can’t digest all the research that’s being published on a weekly basis in terms of diagnostics and medicine. 

“A.I. can ingest all of that data in seconds,” Kaul says. There’s so much buzz around search or replacing Wikipedia or robotics for mechanizing labor, “But, just to me, what’s really exciting is to have an A.I. doctor that knows my entire system, has all 49 years of my data, every med I’ve ever taken, every surgery I’ve ever had, all my genome sequencing—and that is constantly blasting that against all the new publications and all new research and all new clinical trials and giving me recommendations.”

Kaul pointed me back to a paper that Vinod Khosla authored in 2016—which made a rather bold claim that 80% of every physician’s workload may end up being replaced by technology as the health care world entertains more “inexpensive data-gathering techniques, continual monitoring, more rigorous science and more available and ubiquitous information leading to personalized, precise, and consistent (across doctors) insights into a patient.”

And if that’s the kind of technology a company could help develop, Kaul says the firm is happy to wait to see a return. Referring to all Khosla’s big swing investments, which have included bets in fintechs like Square, Affirm, or Stripe; consumer companies like Instacart and DoorDash; enterprise companies like RingCentral or GitLab; and health care companies like SWORD Health, Hello Heart, and Ginger; or food companies like Impossible Foods, Kaul says: “We will be patient. We don’t mind keeping a company at, you know, a $200k a month burn for four years to get it to the right point.”

Given the rather unusual structure of Microsoft’s most recent investment in OpenAI, Khosla might end up having to wait a while. 

The big Bitcoin whale…It was about six years ago that a professor at the University of Texas McCombs School of Business sifted through 200 gigabytes of trading data to determine how an unidentified Bitcoin “whale” distorted trading and almost singlehandedly drove the token’s run-up between late 2017 and early 2018. Is it happening again now? Find out in Shawn Tully’s new feature here.

See you tomorrow,

Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.

VENTURE DEALS

- Portside, a San Francisco-based SaaS platform for the business aviation industry, raised $50 million in Series B funding. Insight Partners led the round and was joined by I2BF Global Ventures

- Treasury Prime, a San Francisco-based embedded banking software platform, raised $40 million in Series C funding. BAM Elevate led the round and was joined by Banc Funds, Invicta, Deciens, QED, and SaaStr.

- Phantom AI, a Mountain View, Calif.-based autonomous driving platform provider, raised $36.5 million in Series C funding. KT Investment, Renaissance Asset Management, InterVest, Shinhan GIB, and Samsung Ventures invested in the round. 

- Craft, a San Francisco-based enterprise intelligence company, raised $32 million in Series B funding. BAM Elevate led the round and was joined by Greycroft, Uncork Capital, High Alpha, ServiceNow Ventures, Point Field Partners, and other angels. 

- Risilience, a Cambridge, U.K.-based climate analytics company, raised $26 million in Series B funding. Quantum Innovation Fund led the round and was joined by IQ Capital and National Grid Partners

- NT-Tao, a Hod HaSharon, Israel-based nuclear fusion energy company, raised $22 million in Series A funding. Delek US and NextGear Ventures co-led the round and were joined by Honda, OurCrowd, and the Grantham Foundation

- Recurrency, a San Francisco-based enterprise resource planning automation platform, raised $22 million in funding. Bessemer Venture Partners led the round and was joined by Lachy Groom, Elad Gil, Y Combinator Continuity, and others. 

- Constellation, a New York-based creative marketing technology company, raised $15 million in funding from Newlight Partners

- Dimension Inx, a Chicago-based biomaterials design platform, raised $12 million in Series A funding. Prime Movers Lab led the round and was joined by KdT Ventures, Revolution’s Rise of the Rest Seed Fund, Solas BioVentures, Portal Innovation Ventures, and Alumni Ventures.

- New School Foods, a Toronto-based plant-based food startup, raised $12 million in seed funding. Lever VC led the round and was joined by Blue Horizon, Hatch, Good Startup, Alwyn Capital, Joyance Partners, and others. 

- Gem Security, New York- and Tel Aviv-based cloud security operations platform, raised $11 million in seed funding led by Team8.

- Doctify, a London-based patient reviews platform, raised $10 million in funding. Beringea led the round and was joined by Keen Venture Partners, Amadeus Capital Partners, and Guinness Ventures.

- Jetpack.io, an Oakland-based cloud development platform, raised $10 million in seed funding co-led by Coatue and GV

- Passthrough, a New York-based fund workflow automation platform for investors, fund managers, and other fintechs, raised $10 million in Series A funding. Positive Sum led the round and was joined by Motley Fool Ventures, Broadhaven Ventures, Company Ventures, and Great Oaks VC

- Site 20/20, a Dartmouth, Canada-based construction technology company, raised $10 million in funding from Deep Field Asset Management

- Tau, a Berlin- and Turin, Italy-based protective coatings company for copper, aluminum, and steel wires, raised €9 million ($9.89 million) in Series B funding. Solvay Ventures led the round and was joined by Finindus and others. 

- Michroma, a San Francisco-based fungi-based food coloring company, raised $6.4 million in seed funding. Supply Change Capital led the round and was joined by SOSV’s IndieBio, GRIDX, Be8 Ventures, CJ CheilJedang, Fen Ventures, Boro Capital, The Mills Fabrica, Portfolia’s Food & AgTech Fund, New Luna Ventures, Siddhi Capital, Groundswell Ventures, and Hack Capital.

- WARP, a Los Angeles-based freight network logistics company, raised an additional $5.7 million in funding from MaC Venture Capital, Bonfire Ventures, and Frontier Venture Capital. 

- Instill AI, a London-based unstructured data infrastructure platform, raised $3.6 million in seed funding. RTP Global led the round and was joined by Lunar Ventures, Hive Ventures, and other angels. 

- Frontrow Health, an Austin-based digital health company, raised $3 million in seed funding co-led by Next Coast Ventures and NextGen Venture Partners

- Kubeark, a New York-based delivery and lifecycle management platform, raised $2.8 million in pre-seed funding. Credo Ventures led the round and was joined by Seedcamp, LAUNCHub Ventures, 500 Emerging Europe, and others.

- Gotcare, a Toronto-based home health platform, raised CAD $2.6 million ($1.96 million) in bridge funding. TELUS Pollinator Fund for Good led the round and was joined by Sandpiper Ventures.

PRIVATE EQUITY

- Vista Equity Partners acquired KnowBe4, a Clearwater, Fla.-based security awareness training and simulated phishing platform provider, for $4.6 billion. 

- Eads Bridge Holdings acquired a majority stake in Stokes Counseling, a Naugatuck, Conn.-based mental health counseling business. Financial terms were not disclosed. 

- IFM Investors agreed to acquire GreenGas, a Charleston, S.C.-based renewable natural gas company. Financial terms were not disclosed.

- Littlejohn & Co. acquired Ardurra Group, a Miami-based engineering and design services provider to water, transportation, and aviation markets. Financial terms were not disclosed.

- Redwood Software, backed by Turn/River Capital, acquired Cerberus, an Arlington, Va.-based secure file transfer provider. Financial terms were not disclosed.

- Wealth Enhancement Group acquired Legacy Financial Planning, a Naples, Fla.-, Oswego, N.Y.-, and Rochester, N.Y.-based investment advisor. Financial terms were not disclosed.

EXITS

- Morgan Stanley Capital Partners, acquired Apex Companies, a Rockville, Md.-based environmental consulting and engineering solutions provider, from Sentinel Capital Partners. Per the terms of the deal, Sentinel will maintain a minority stake in Apex. Financial terms were not disclosed.

OTHER

- Almond acquired Amossys, a Rennes, France-based cybersecurity company. Financial terms were not disclosed.

- AppDirect acquired TBI, a Chicago-based technology service aggregator. Financial terms were not disclosed. 

- Chowly acquired Koala, a Brooklyn-based guest experience platform for restaurant brands. Financial terms were not disclosed. 

- Precisely acquired Transerve, a Goa, India-based location intelligence and data provider. Financial terms were not disclosed.  

- Sherlock Biosciences acquired Sense Biodetection, an Oxford, U.K.-based molecular diagnostics company. Financial terms were not disclosed. 

IPOS 

- Nextracker, a Fremont, Calif.-based solar tracking systems designer and manufacturer, plans to raise up to $535.9 million through the sale of 23.3 million shares priced between $20-23. 

- Atlas Energy Solutions, an Austin-based frac sand mining and transportation company for the oil and gas industry, filed for an initial public offering.  

FUNDS + FUNDS OF FUNDS

- Patient Square Capital, a Menlo Park, Calif.-based investment firm, raised approximately $3.9 billion for a fund focused on investing across the health care industry.

- defy.vc, a Woodside, Calif.-based venture capital firm, raised $300 million for its third fund focused on investing in 33 core companies.

PEOPLE

- Hg, a London-based investment firm, hired Alan Cline as head of North America. Formerly, he was with Vista Equity Partners.  

The online version of yesterday's newsletter has been corrected to reflect that Enko raised an additional $10 million in funding.

 

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