Inflection AI

The Promise

Inflection AI launched in March 2022 with the kind of pedigree that makes investors salivate. Co-founded by Mustafa Suleyman (co-founder of DeepMind, sold to Google for $500 million), Karén Simonyan (a DeepMind research lead), and Reid Hoffman (co-founder of LinkedIn), the company promised to build AI that was fundamentally different—personal, empathetic, and emotionally intelligent.

Their flagship product was Pi, a chatbot designed to be a “personal AI.” Unlike ChatGPT’s assistant-like demeanor, Pi was warm and conversational, designed for emotional support as much as information retrieval. The company talked about building AI with “EQ” alongside IQ—a companion rather than a tool.

The vision was to create the AI that ordinary people would actually want to talk to. Not a productivity assistant, but a friend. An AI that remembered your preferences, understood your emotional state, and provided genuinely helpful support for daily life.

The Rise

The fundraising was spectacular. Inflection raised $225 million in a seed round at an eye-popping $2 billion valuation—one of the largest seeds in tech history. Then in June 2023, the company announced a $1.3 billion round led by Microsoft, NVIDIA, Reid Hoffman, and others, pushing the valuation to $4 billion.

The investor thesis was clear: Suleyman had helped build the most successful AI research lab in history (DeepMind). If anyone could create the next breakthrough in AI companionship, it was this team. The technical talent was world-class. The capital was nearly unlimited.

Pi launched in May 2023 and garnered positive reviews for its conversational abilities. The company built its own large language model, Inflection-2, which benchmarked competitively with GPT-4 on many tasks. They invested heavily in compute, securing 22,000 NVIDIA H100 GPUs. Everything was in place for the long game.

The Fall

Then, in March 2024, the strangest deal in AI history unfolded.

Microsoft didn’t acquire Inflection AI. Instead, it paid $650 million to hire Mustafa Suleyman as the new head of Microsoft AI, along with most of the company’s key employees. The payment was structured as licensing fees for Inflection’s technology and to make investors whole—but the practical effect was a corporate decapitation.

The company that had raised $1.5 billion and achieved a $4 billion valuation effectively ceased to exist in its original form. Suleyman went to Microsoft. The research team followed. What remained was a shell, pivoting to enterprise AI services with a skeleton crew.

Why would investors agree to this? Perhaps because the alternative was worse. Despite the massive funding, Inflection had struggled to find a path to meaningful revenue. Pi had users but no obvious monetization. The burn rate for training frontier models was astronomical. And competing with ChatGPT for consumer attention was proving impossible.

Microsoft got the talent without the integration headaches or the valuation premium. Investors got their money back, which is better than most venture outcomes. But the vision of a personal, empathetic AI companion died with the deal.

Warning Signs

• Consumer AI economics: Building a free chatbot without clear monetization is a race to the bottom of your bank account
• Competing with Microsoft’s portfolio company: Inflection was trying to compete with ChatGPT while Microsoft was both their investor and OpenAI’s largest backer
• Compute arms race: The cost of training frontier models meant even $1.5B in funding could evaporate quickly
• Acqui-hire structure: Microsoft’s ability to pay licensing fees to make investors whole revealed the company’s value was in the people, not the product
• Suleyman’s history: His departure from DeepMind had also involved management tensions; the pattern repeated

Epitaph

🪦 Pi in the sky, Microsoft in the pocket