Elon Musk’s Latest AI Venture Utilizes Special Purpose Vehicles to Attract Investors
In a recent email, Elon Musk’s new AI startup, xAI, is said to be enticing more investors through special purpose vehicles (SPVs) that impose substantial fees.
The email presents an opportunity to participate in a funding round for xAI, a startup Musk is developing from the former Twitter company. According to the message, xAI is seeking investments at a pre-money valuation of $15 billion, with a target of $3 billion in external investment, which would raise the post-money valuation to $18 billion.
Outlined in the email are the terms for potential investors looking to engage in the xAI financing round through SPVs. These SPV structures allow various venture capitalists to pool their investments through a single entity.
However, these commitments come with costs for prospective xAI investors. For investments of $10 million and above, investors will receive a portion of an SPV that takes precedence over other SPVs on the xAI cap table, enhancing its attractiveness. Yet, there’s an upfront fee of 5%, along with a 1% management fee. Additionally, carried interest is set at 10%, as per the email.
The email suggests that varying investment amounts may result in adjustments to these fees. For example, a management fee of 2% and carried interest of 20% could apply in certain scenarios.
The email was distributed to a broad spectrum of potential investors, according to an individual who received and shared it with Business Insider. Nevertheless, the email indicates that xAI anticipates securing funds within the next 2-3 weeks on a first-come, first-served basis.
It notes that a significant number of limited partners (LPs) have been awaiting this deal since December 2023. The email also reveals that xAI has already obtained an allocation in the upcoming equity round and that, prior to its official funding round, Elon allocated a specific number of shares to his inner circle at a $15 billion pre-money valuation.
Despite xAI’s substantial valuation, it remains a relatively small operation led by a few new hires Musk has brought on board since last year. According to one source familiar with the group, approximately 10 engineers are working full time, supported by around 5,000 to 10,000 GPUs, a relatively modest number of the graphics processing units required to train extensive language models.
As of now, xAI’s sole product is a chatbot named Grok, trained using Twitter data, including Musk’s tweets, to mimic his style.
A representative for xAI did not respond to an email seeking comment.