Each week, Verdict’s editors select a deal that illustrates the themes driving change in our sector. The deal may not always be the largest in value, or the highest profile. But we select it because of what it tells us about where the leading companies are focusing their efforts, and why. We pick apart the deal itself, and the industry theme behind it. This new, thematic deal coverage is driven by our underlying Disruptor data which tracks all major deals, patents, company filings, hiring patterns and social media buzz across our sectors.

The deal

US data storage platform Databricks is to acquire generative AI platform MosaicML in a $1.3bn deal which will see the two companies provide custom-built generative AI models for the enterprise market.

The convergence of Databricks’ data storage and sorting functionality with MosaicML’s tools to build low-cost custom generative AI models will address one of the primary challenges for enterprises looking to leverage the power of generative AI: safeguarding their proprietary data.

Why it matters

With their joint offering, Databricks and MosaicML will enable organisations to use their own data to train and run their own private custom models. This offers assurances and transparency around the data used to train the Large Language Model (LLM) in contrast to off-the-shelf public models offered by companies including OpenAI and Google.

Chris D’Agostino, Databricks global field CTO told Verdict: “Organisations both large and small will be able to retain control of their most valuable resource, their data.”

As well as organisations not being able to own their intellectual property, leading models such as ChatGPT are not trained on the most relevant data, D’Agostino adds.

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By GlobalData

MosaicML claims that its latest LLMs, the MPT-7B and MPT-30B, cost hundreds of thousands of dollars to build rather than the multimillions spent on LLMs such as ChatGPT. Enterprise use cases may require smaller models and do therefore not need expensive LLMs.

“The combined technology of Databricks and MosaicML will allow companies to build and train models on their own terms, something that has been cost prohibitive for companies to do before,” said D’Agostino.

After the initial interest in foundational general pre-trained (GPT) models such as those of OpenAI, Alphabet, Meta, Anthropic or Cohere, which use publicly available data, usually on the open Internet, the industry is beginning to realise that there is a significant market opportunity for enterprises to train their own LLMs on their own proprietary and valuable data, according to GlobalData thematic analyst Josep Bori.

“As a result, interest in foundational models combined with tools and services to facilitate these developments is bound to increase, both among corporations and investors in companies providing them,” said Bori.

GlobalData predicts the total AI market will be worth $383.3bn by 2030, increasing at a 21% compound annual growth rate between 2022 and 2030. However, according to the analyst, the AI market fell significantly in 2022 having peaked at $127.2bn in 2021 falling to $72.9bn in 2022.

Despite an overall dip in AI investment in 2022, investors remain giddy about the generative AI market. Last month, French generative AI start-up Mistral AI registered a record seed funding investment of $113m. “The recent Mistral AI funding round and Databricks’ acquisition of MosaicML seem to fall in that category “enablers of generative AI for the enterprise,” said Bori.

While venture investors remain bullish about generative AI, the deal demonstrates how companies are also looking to extend their generative AI talent base and technology capacity through mergers and acquisitions (M&A).

For example, on May 24, data warehousing and platforming Databricks competitor, Snowflake, announced it’s acquisition of generative AI search start-up Neeva. Going forward, a period of increased M&A and partnering activity with the express mission of building generative AI expertise into a data infrastructure offering such as Databricks’ will follow as the market matures.

The detail

Both MosaicML and Databricks are young companies. The former was founded in 2021 and has a staff of 64. A deal value of $1.3bn gives the fledgling company a massive valuation which demonstrates investor confidence in the transformative potential of generative AI.

Mosaic’s last investor round, in January 2023, with investors including Frontline Ventures and Samsung NEXT, valued the company at $222m. This exit is six times that value. The generative AI market is seeing an investment frenzy as demand for generative AI talent and technology reaches fever pitch.

Databricks is a more established company, founded in 2013, and currently has a headcount of around 4,000. Both companies are based in the San Francisco Bay Area