AI Startups Try to Counter Chinese Models as VC Interest Wanes

The rise of Chinese open-weight artificial intelligence models has American startups racing to build counterparts.

But as The Wall Street Journal (WSJ) reported Sunday (Aug. 2), these companies have begun to run into a roadblock: a lack of interest from venture capital (VC) investors.

“Every tier-one VC pretty much said no,” said Mark McQuade, CEO of Arcee AI, which has developed an AI model users can download and customize as an alternative to up-and-coming AI tools from China.

According to the report, open-weight companies such as Arcee, Reflection AI and Poolside are betting on increased demand for models that are as efficient as those from China, but don’t carry geopolitical issues.

“There is a vast, vast degree of want for an American company producing the most-capable open-source artificial intelligence,” said Jason Warner, Poolside’s co-founder/co-CEO.

As WSJ noted, open-weight models let anyone download the numerical values, called weights, for each of the billions of parameters housed in their machine minds. This information lets anyone run a model on specialized hardware and build on that model, changing the weights with new data, otherwise known as fine-tuning.

While the U.S. was a leader in these models at first, China quickly caught up, the report added. Companies have begun embracing these models, WSJ said, as the size of their AI bills have shot up. Now, companies like OpenAI have begun lowering prices to compete.

“It’s the beginning of an awakening that it can happen — that the default model that you use will be an open-source model in the future,” Michael Stewart, a managing partner at M12, Microsoft’s venture capital fund, told WSJ.

PYMNTS wrote last week about the way the AI industry had begun dividing over the open-sourced/closed-source debate. This came after Nvidia and a host of other tech companies launched an AI safety coalition, calling on governments and businesses to invest in “shared open infrastructure” for AI defenses.

“For CFOs of middle market firms, however, the contest is less ideological than financial. The relevant question is not whether open-weight AI will defeat proprietary AI,” that report said.

“It is whether the savings, flexibility and control offered by open models are sufficient to justify assuming more responsibility for the infrastructure beneath them. That tradeoff will become more important as AI moves beyond isolated chatbots and begins operating across finance, procurement, treasury, compliance and enterprise software.”

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