Microsoft Invests $16 Million in Mistral AI: A Strategic Move for Future Innovation

Yesterday, Mistral AI, a Paris-based AI startup focusing on foundational models, announced the launch of a new large language model poised to compete with OpenAI’s GPT-4, alongside a distribution partnership with Microsoft. However, some critical details about this partnership were somewhat understated.

As part of the collaboration, Microsoft is investing €15 million (approximately $16.3 million) in Mistral AI. This funding comes as an extension to Mistral's previously announced Series A funding round, meaning the company's valuation remains unchanged despite this investment.

Mistral AI achieved a valuation of around $2 billion following its latest funding round in December 2023, during which it raised €385 million (around $415 million), led by Andreessen Horowitz (a16z). Just weeks after its formation, the company secured a $113 million seed round.

Microsoft indicated that this investment will convert into equity during Mistral’s next funding round. However, because this investment aligns with the Series A valuation, Microsoft will hold less than 1% equity in the emerging French AI firm.

Mistral AI has introduced Mistral Large, its flagship large language model, designed to compete with established models like GPT-4 and Claude 2. Unlike previous offerings, Mistral Large is not open-source; developers can access it through Mistral's proprietary API.

Additionally, Mistral AI and Microsoft finalized a distribution partnership for Azure, likely expanding Mistral's customer base through this new channel. Azure users will benefit from access to Mistral’s models via Azure’s catalog, providing them with alternatives alongside OpenAI's offerings. Notably, Meta’s Llama models are also available on Azure, enriching the ecosystem for developers.

This investment aligns Microsoft with both Mistral AI and OpenAI’s capped profit subsidiary, while also raising scrutiny from regulators in the EU and the U.K. regarding its expanding influence in the generative AI space.

The European Commission has taken notice of this investment, with a spokesperson confirming that they will review the deal between Microsoft and Mistral AI as part of their ongoing examination of large tech companies and generative AI initiatives.

Overall, while Microsoft may not have highlighted this investment prominently, Mistral AI’s profile as a potential European AI leader begins to mirror that of its American counterparts, adopting a closed source approach and maintaining strong backing from U.S. investors.

Correction: Microsoft's investment is not a convertible note. It is included in the Series A round but will convert into equity at a future date.