It was OpenAI that released the first consumer-facing, generative-A.I.-powered chatbot last fall—despite how Google’s artificial intelligence team had long been “the envy of the tech community,” as my colleague Jeremy Kahn details in the latest Fortune cover story. In 2017, it was Google researchers who came up with the basic algorithmic design—an artificial neural network called a transformer—that would end up underpinning the generative A.I. boom. And in 2021, Google had created LaMDA, a chatbot with impressive dialogue skills, though the company had feared that releasing it would risk its reputation if it produced responses that were inaccurate or biased or “just be bizarre and disturbing,” Kahn writes.

But there was another problem: How would a chatbot tie in with the largest source of Google’s revenue—its advertising?

This is a question Google hasn’t quite answered yet—even as the company goes ahead with an A.I.-powered product release rampage this year: its ChatGPT competitor Bard, its Workspace writing assistant functions, its Vertex A.I. environment, and, as was announced at the company’s annual developer conference in May, new features for Gmail, Google Maps, and photo editing, as noted in Kahn’s story.

But if you compare notes between Google’s full search engine and what it calls its “search generative experience”—a very wordy descriptor for the “snapshot” answer to your search inquiry, paired with links and websites to corroborate it—the summarized answers or dialogue threads don’t seem to offer the same opportunities for ad placement or sponsored links—at least for now.

As Kahn writes:

With snapshot answers, people may be far less likely to click through on links. News publishers are particularly incensed: With its current LLM approach, Google essentially scrapes information from their sites, without compensation, and uses that data to build A.I. that may destroy their business. Many large news organizations have begun negotiations, seeking millions of dollars per year to grant Google access to their content. In July, the Associated Press became the first news organization to sign a deal of this kind with OpenAI, although financial terms were not disclosed. (Jordi Ribas, Microsoft’s head of search, told the audience at the Fortune Brainstorm Tech conference in July that the company’s own data shows that users of Bing Chat are more likely to click on links than users of a traditional Bing search.)

Of course, if people don’t click through on links, that also poses an existential threat to Alphabet itself. It remains far from clear that the business model that drives 80% of Google’s revenues—advertising—is the best fit for chatbots and assistants. OpenAI, for example, has chosen a subscription model for its ChatGPT Plus service, charging users $20 per month. Alphabet has many subscription businesses, from YouTube Premium to various features in its Fitbit wearables. But none are anywhere near as lucrative as advertising. 

Elizabeth Reid, Google’s vice president of Search, told Kahn the company is “continuing to experiment with ads.” That would include things like placing ads in different positions for Google’s SGE page or building ads into answers. “Although,” as Kahn writes, “Google will have to figure out how to make clear to users that a given portion of a response is paid for.”

This will be after Google makes clear to advertisers what they’re getting for their money.

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

- Solink, an Ottawa-based physical security company for businesses, raised $60 million in Series C funding. The Growth Equity business within Goldman Sachs Asset Management led the round and was joined by OMERS Ventures and BDC IT Ventures. 

- Akooda, a Boston-, New York-, and Tel Aviv-based ops intelligence platform, raised $11 million in seed funding. NFX, Atlassian Ventures, Village Global, and Founder Collective invested in the round.

- Giraffe, a New York-based impact investing platform for employees, raised $10.5 million in seed funding. Group 11 led the round and was joined by Altair Capital and others. 

- Adaptive Shield, a Tel Aviv-based SaaS security platform, raised $10 million in funding from Blackstone Innovations Investments.

- K4Connect, a Morrisville, N.C.-based enterprise technology provider for senior living communities, raised $8.9 million in funding. Bryce Catalyst and AVP co-led the round and were joined by Intel Capital, Forté Ventures, Topmark Partners, and the Ziegler-Linkage Fund. 

- ETCH, a Baltimore-based decarbonization company, raised $7.5 million in seed funding from Emerald Development Managers. 

- HumanFirst, a Montreal-based data productivity suite, raised Can$5 million ($3.8 million) in seed funding. Panache Ventures led the round and was joined by Inovia, Real Ventures, BoxOne Ventures, and other angels. 

PRIVATE EQUITY

- Kudu Investment Management acquired a minority stake in Apera Asset Management, a London-based private debt manager. Financial terms were not disclosed.

- Rcapital acquired Temple Lifts, a Bromley, U.K.-based elevator and escalator maintenance company, from Hitachi. Financial terms were not disclosed.

- Vector Laboratories, a Thompson Street Capital Partners portfolio company, acquired Quanta BioDesign, a Plain City, Ohio-based inventor of discrete polyethylene glycol technology. Financial terms were not disclosed.

EXITS

- Thales agreed to acquire Imperva, a San Mateo, Calif.-based data and application cybersecurity company, from Thoma Bravo. The deal is valued at $3.6 billion. 

- CAREL acquired Kiona, a Trondheim, Norway-based system integration platform, from Summa Equity. Financial terms were not disclosed. 

- D&H United, a Wind Point Partners portfolio company, acquired Tanknology, an Austin-based environmental compliance testing and inspection services provider, from Hamilton Robinson Capital Partners. Financial terms were not disclosed. 

OTHER

- Banc of California, a Santa Ana, Calif.-based bank, and PacWest Bancorp, a Beverly Hills, Calif.-based bank, agreed to a merger. They also received a $400 million funding raise from Warburg Pincus and Centerbridge.

- Practice Better acquired That Clean Life, a Toronto-based nutrition planning software for health and wellness professionals. Financial terms were not disclosed.

FUNDS + FUNDS OF FUNDS

- Valhalla Ventures, a Los Angeles-based venture capital firm, raised $66 million for a fund focused on deep-tech and gaming. 

PEOPLE

- Balderton Capital, a London-based venture capital firm, hired Leah Sutton as chief portfolio talent officer. Formerly, she was with Elastic.

- Fort Point Capital, a Boston-based private equity firm, hired Kerry Muse as director of business development. Formerly, she was with Windjammer Capital.

- HighPost Capital, a West Palm Beach, Fla.-based private investment firm, hired David Weston as a managing director. Formerly, he was with North Castle Partners.

- Stanley Capital Partners, a London-based private equity firm, hired James Sexton and Frederik Fogtdal as principals. Formerly, Sexton was with Investcorp and Fogtdal was with Alvarez and Marsal. 

- Wavecrest Growth Partners, a Boston-based growth equity firm, promoted Anthony Giannobile to principal and Taylor Welsh to vice president. 

Correction, July 26, 2023: A previous version of this newsletter misspelled the name of Inovia.