A startup nabbing a $14 billion investment from one of the top tech companies seems like a good thing. The reality is a lot more complicated.
Scale AI has faced a turbulent five months since Meta purchased a 49% stake in the startup, write BI’s Charles Rollet and Ben Bergman. Once a leader in the field of stress testing and perfecting AI models for Big Tech, Scale AI has faced pay cuts, poaching, and pivots since the Meta deal.
It’s representative of how dealmaking with big players can be a double-edged sword in the age of AI.
For some, like Scale AI cofounder Alexandr Wang, who’s now a high-level Meta exec, the deal was a windfall. However, according to interviews with five current and former contractors and internal correspondence obtained by BI, Scale AI has faced some inner turmoil following the Meta deal.
Joe Osborne, a Scale AI spokesperson, strongly disputed that the startup’s business has been in trouble since the Meta investment and said this quarter is on track to be the company’s biggest of the year.
Not all of Scale AI’s issues are related to the Meta deal. A BI investigation this June found Scale AI routinely used public Google Docs for work with its Big Tech clients. (There was no indication of a breach, and Scale did lock down the documents after BI’s report about the issue.) It also faced litigation over claims it misclassified and underpaid contract workers.
But one of the larger problems stems from some Big Tech companies pausing work with Scale now that one of their competitors — Meta — is its biggest backer.
The AI environment means more startups could encounter similar issues.
The Scale AI-Meta deal was unique in many ways, but there are still lessons to be learned from the aftermath.
The top-heavy ecosystem of the AI marketplace means there are a limited number of landing spots for startups looking for exit opportunities. Add in the ultra-competitive nature of the space, and a deal with one company could mean the end of business with the others.
Of course, not every startup will get acquired by a tech giant. And yes, some startups will have products that companies will need to use regardless of their backers. But for the vast majority of young AI companies, that’s not a reality.
So, if the industry faces a bit of turmoil and funding dries up, startups may have some difficult decisions about who they cut deals with and which doors could close to them.
