VC firms are turning down U.S. open-weight AI startups, even as demand for domestic alternatives to Chinese models grows. The funding gap threatens their race.
Venture capital firms are telling American open-weight AI startups that they will not fund them, even as demand for alternatives to Chinese models grows.
The Wall Street Journal reported Sunday that Arcee AI and Poolside, along with other startups, have struggled to raise money for their efforts to build models that anyone can download and customize. "Every tier-one VC pretty much said no," Mark McQuade, Arcee's CEO, told the Journal.
These companies are betting that U.S. businesses and government agencies will want models that match Chinese efficiency without relying on technology from a geopolitical rival. "There is a vast, vast degree of want for an American company producing the most-capable open-source artificial intelligence," Jason Warner, Poolside's co-founder and co-CEO, told the Journal.
Open-weight models let anyone download the numerical values, called weights, for each of the billions of parameters. That allows users to run the model on their own hardware and fine-tune it with new data. The U.S. led in this field early, the Journal reported. Chinese developers caught up quickly, and companies have begun adopting these models as their AI costs have risen. OpenAI has responded by cutting prices.
Michael Stewart, a managing partner at M12, Microsoft's venture fund, told the Journal that the shift toward open-source models is just beginning. "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," he said.
The divide between open-weight and closed models is widening. Nvidia and other tech companies recently launched a safety coalition that called for "shared open infrastructure" for AI defenses. The Journal reported that the funding reluctance from Sand Hill Road leaves Arcee and Poolside with a harder path than their Chinese competitors, which benefit from state-backed funding and a unified domestic market.
Microsoft shares rose 3.02% to $464.72 on the session. The stock carries an Alpha Score of 69, a Moderate rating. The company's venture arm, M12, is an investor in the open-weight space through its stake in Arcee.
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