European investors grab the popcorn for the new ‘series’ of OpenAI, but are fearful of the fallout

With the OpenAI saga playing out across the pond, the European tech community has been waiting for the latest updates as if a new series of “Succession” was about to drop. Indeed, events have at times resembled some Greek tragedy about the Gods fighting it out, atop Mount Olympus, while us mere mortals watch on. With only a handful of large-scale AI startups such as Germany’s Aleph Alpha and France’s Mistral to get any drama from (London’s DeepMind was absorbed into the Google Borg long ago), we’ve been grabbing the popcorn and watching this unexpected episode of Silicon Valley.

I probed a few keen tech observers, many of them venture capitalists, but almost none would go on the record, perhaps for fear of drawing the attention of some Valley AI God in full battle-mode.

A U.K.-based investor posited that the drama will have positive effects on Europe’s nascent AI sector.

“This is great news for startups like Mistral, who can probably poach some good employees and catchup with OpenAI. For the AI companies built on OpenAI this will make no major changes in the short term, but will mean the market homogenizes, especially if they lose direction and focus.”

Another pointed out that after OpenAI’s much lauded Demo Day, it was seen as “the most extraordinary kind of business,” but now looks like “an absolute shit show.” They likened it to the debacle that was WeWork, “but at least no proper VCs are in this one, as it’s a mix of nonprofit and for-profit and no one understands how that works.”

One European VC predicted that the events will have an impact on all term-sheet negotiations: “I would expect founders to become more resistant to board control over CEO replacement and other similar terms. They will clearly ask ‘if this can happen to Sam Altman, why should I assume it won’t happen to me?’”

At an even more practical level, a lot of European applied AI startups are very reliant on OpenAI, which is (whatever anyone says) head and shoulders above most alternatives. The turmoil at OpenAI seems to be pushing the business more into the hands of Microsoft and that could have quite major implications for companies reliant on OpenAI’s platform… “especially if that company is competitive with or outside the Microsoft ecosystem,” they pointed out.

“From a platform POV, it is a disaster,” said another investor. “So many companies are already working with OpenAI, this is like the Facebook, Twitter, etc. API changes all over again and possibly worse.”

There was also grumbling about European regulation: “As we have seen with the heavy-handed regulation coming down from EU-level, government won’t save us. We need to have more AI champions locally. There is still time, but unclear how much.”

Others were more upbeat about the turmoil buying useful time for European startups: “Which is a good thing for European gen AI startups as it gives them time to breathe and re-calibrate before the next shockwave.”

Finally, one brave soul in the shape of DN Capital co-founder and managing partner Steve Schlenker did go on the record.

One of his concerns is that access to the world’s most successful LLMs will move away from the average startup — “such as those in Europe” — and toward startups and researchers, mostly local to the U.S., which pass some new yet-to-be-defined “screening” process, such as that defined by the controversial board at OpenAI.

Furthermore, if the best and brightest from OpenAI go on to be full-time employees of a paid U.S. mega-company like MSFT, “the ability of the AI movement to remain open to all at a fair price will decline rapidly.”

Meanwhile, the upside of all this chaos is that it is playing out in public on social media, largely on Twitter/X. As a Warsaw-based VC put it to me: “It’s pretty exciting and unique that a lot of this shit show is happening publicly on Twitter. Not possible in Europe!”