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Elon Musk’s xAI secures new backing from Andreessen Horowitz, Sequoia and Tribe

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Elon Musk’s xAI has secured new backing from Silicon Valley venture capital giants Andreessen Horowitz, Sequoia Capital and Tribe Capital, as the tech billionaire closes in on a new funding round valuing the artificial intelligence start-up at $18bn.

The trio of investors have committed to joining xAI’s latest financing in which Musk is seeking to raise close to $6bn, according to people familiar with the negotiations.

However, one investor involved in the round said the Tesla and X chief remains “a few hundred million dollars” short of that target. 

Tribe and Sequoia declined to comment. Andreessen Horowitz and Musk did not respond to a request for comment.

The funding deal comes as Musk seeks to secure the financial firepower to catch-up with market leaders OpenAI, Anthropic and Google, all of which have released more powerful generative AI models than xAI.

His pitch to investors is that xAI can gain ground thanks to its connection to the other companies he leads — which could provide technology, data and early revenue as a customers of the start-up.

The funding round would give xAI a so-called “post-money” valuation of $24bn once the new investment is taken into account, and help the start-up develop new versions of its Grok chatbot. 

Musk was a co-founder of OpenAI before leaving in 2018 following disagreements with chief executive Sam Altman on the direction of research. Musk has since sued OpenAI and Altman, claiming they had compromised the start-up’s original mission to build AI systems for the benefit of humanity, a lawsuit that OpenAI has dismissed as “frivolous”.

Musk has also promised to be more transparent in his pursuit of artificial general intelligence — the point at which machines have higher cognitive abilities than humans — than rivals such as OpenAI.

He has also committed to building “maximum truth-seeking AI”, criticising current models that he believes have been trained to be politically correct.

One investor said they were persuaded by Musk’s pitch but cautioned that xAI is “behind” its rivals. “In order to catch up you need to spend billions of dollars on H100 [chips] and infrastructure,” the person warned. 

During the xAI fundraising, investors like Sequoia and Andreessen which have previously backed Musk businesses including X and SpaceX, were given first refusal to back the artificial intelligence venture and acquire as much as 25 per cent of shares, according to the people familiar with the deal talks.

Another Silicon Valley investor added that much of the funding round had been sourced via banks and special purpose vehicles, including outside of the US.

Another investor who participated in the round said he was worried that investors who had raised questions about issues at Musk’s other ventures had been frozen out of the xAI funding round.

“The team behind xAI is really good so I’m not worried about our investment, but I’m worried about the approach,” the person said. “It’s not inclusive, it’s not Silicon Valley.”

The Financial Times first reported in January that xAI was in talks to raise as much as $6bn.

It had instructed Morgan Stanley to co-ordinate discussions with potential investors around the world, including sovereign wealth funds, family offices and retail investors in the Middle East and Hong Kong.

At the time, Musk said in a post on X: “xAI is not raising capital and I have had no conversations with anyone in this regard.”

Additional reporting from Maria Heeter in New York and Ivan Levingston in London



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