Tech Giants Accumulate Huge Startup Stakes, Even As M&A Appetite Wanes

Why acquire a startup when you can get a piece of it instead?

Increasingly, that’s the mindset of the world’s most valuable technology companies.

Over the past couple years, the top tech giants have made comparatively few big-ticket purchases of venture-backed companies. However, the Big Five — Nvidia, Apple, Microsoft, Google and Amazon — have been actively and extravagantly investing in startups, particularly of the AI variety.

Those stakes are adding up. Last week, OpenAI and Microsoft drove home the reality of just how valuable a startup investment can become.

Under an updated company structure OpenAI unveiled last week, Microsoft holds 27% of OpenAI Group, its for-profit arm. That stake is worth around $135 billion, based on the generative AI unicorn’s recently reported $500 billion valuation.

Other big solo stakes

Microsoft’s OpenAI stake looks to be the most valuable private startup holding by one of the five largest technology companies. It’s also the most expensive investment, with Microsoft shelling out $10 billion in a 2023 financing, as well as backing follow-on rounds.

However, other tech giants have also poured billions into startup deals in the past couple years. These include both solo financings and investments made as part of broader syndicates.

Not surprisingly, the largest solo investments have mostly gone to generative AI leaders, topped by Anthropic and OpenAI. These are both strategic and financial investments, as the tech giants jockey to maintain their market edge in the AI age.

Lead syndicate investments

More commonly, the Big Five invest as part of syndicates. They don’t always insist on leading rounds, but they often do.

Many of those deals turn out to be quite large. To illustrate, we used Crunchbase data to put together a list of the largest financings of the last couple years with one of the tech giants as lead or co-lead investor.

In addition, the Big Five have also participated as non-lead investors in a number of giant rounds for companies including xAI, Safe Superintelligence, Thinking Machines Lab, Mistral AI, and Commonwealth Fusion Systems.

You can make big returns doing this

Besides the strategic benefits the tech giants derive from these investments, they’re also generating enormous paper wealth.

Take Microsoft’s OpenAI stake. At $135 billion, it’s more than 6x larger than the purchase price of the largest completed private startup acquisition to date. (Meta’s 2014 purchase of WhatsApp).

We don’t know the precise value of Amazon’s stake in Anthropic, but it’s also certain to be sizable. The e-commerce and cloud giant committed to invest $8 billion in the Gen AI company in 2023 and 2024.

With Anthropic’s valuation nearly tripling over a six-month period this year to hit $183 billion, Amazon’s stake has obviously appreciated. Ditto for Google, which also invested in the company at lower valuations.

Not just giant rounds

The Big Five aren’t just making huge AI investments. They’re also actively partaking in startup rounds at various sizes and stages.

Per Crunchbase data, so far this year, the group 1 has made at least 208 disclosed startup investments, with those rounds collectively valued at just over $70 billion. 2 Annual deal count for the prior four years also held up at similar levels, as charted below.

Why invest in startups rather than acquire them? It’s probably not a money issue. Given that the five top tech companies have a combined market capitalization of over $18 trillion, they can afford to buy pretty much any startup they want.

More likely, tech giants see strategic advantages in owning stakes of the most promising upstarts in relevant sectors. And seeing how many of these companies have shot up in valuation, there are financial gains to be had too.