Good day. Venture investors are diving into generative AI—and breaking some of their own rules in the process.

Generative AI startups globally raised $17.8 billion as of Sept. 19, up from the $3.9 billion invested in all of 2022, according to data provider Dealroom.co. Venture firms are raising massive funds with the intention of investing more capital in artificial intelligence.

Many investors believe the technology will one day unlock a vast new market. While that may be true, one shouldn’t lose sight of some of the issues in the business model.

Venture capital frowns upon the use of equity dollars for capital expenditures. Yet many startups spend expensive equity capital on computing infrastructure. Another rule of thumb startups in this sector break—avoiding overreliance on fast-moving incumbents. Many generative AI startups do just that, with OpenAI as the main supplier of large language models, such as GPT-4, used by many other companies.

The news Friday that OpenAI ousted its chief executive, Sam Altman, rattled investors and founders in the sector, reemphasizing the risk of dependence on a mega tech provider. 

Continue reading this Pro Take here.

And now on to the news...

Microsoft said it is hiring Sam Altman to helm a new advanced artificial-intelligence research team, after his bid to return to OpenAI fell apart Sunday with the board that fired him declining to agree to the proposed terms of his reinstatement, The Wall Street Journal reports.

Microsoft Chief Executive Satya Nadella posted on X (formerly Twitter) late Sunday that Altman and Greg Brockman, OpenAI’s president and co-founder who resigned Friday in protest over Altman’s ouster, will lead its team alongside unspecified colleagues. Nadella said Microsoft was committed to its partnership with OpenAI and that it would move quickly to provide Altman and Brockman with “the resources needed for their success.”

Brazil’s private-capital industry continues to mature and is attracting U.S. asset managers looking to expand in new regions, as investment risks increase in other markets such as China, WSJ Pro reports. 

• Publicly traded U.S. firm Ares Management, which oversees about $395 billion mostly in private credit operations, recently formed a partnership with Brazilian private-equity manager Vinci Partners that involves marketing new funds offered by both firms. As part of the deal, Ares invested $100 million in Rio de Janeiro-based Vinci.
   
• In another deal, Claure Group, the investment firm of former SoftBank Group senior executive Marcelo Claure, acquired a stake in eB Capital, a private-equity firm in São Paulo, the firms said last month. Claure is joining eB Capital as vice chairman and managing partner.

A pile of government cash from last year’s climate law was supposed to fuel a wave of clean-energy startups. Instead, many are running out of money before the funding comes through, WSJ reports. Higher interest rates and rising costs have hurt the companies in what are often capital-intensive industries. Washington’s grinding bureaucracy has been slow to dole out the cash from the climate-focused Inflation Reduction Act.

People

Precision immunotherapy startup Affini-T Therapeutics appointed Kathy Bergsteinsson as chief financial officer. She was previously at Morgan Stanley.

Pearl, a dental artificial intelligence startup, appointed Ben Plomion as chief operating officer. He was previously at Dibbs and GumGum.

Nouscom, a Switzerland-based cancer vaccine developer, closed a €67.5 million Series C round from Andera Partners, Bpifrance and others. 

Cumulus Coffee, a New York-based developer of a machine to make cold brew coffee beverages at home, snagged $20.3 million in seed funding. Valor Equity Partners led the round, which included contributions from Maveron and others.

Silverflow, a payment processing technology startup, picked up a €15 million investment led by Global Paytech Ventures. The company has offices in The Netherlands, the U.K. and New York.

PhotoPharmics, an American Fork, Utah-based developer of a therapeutic device for Parkinson's disease patients, completed a $16 million investment led by Kickstart Fund.

Superstate, an asset management startup, landed $14 million in Series A funding from investors including CoinFund.

Gravity, a New York-based electric vehicle charging and energy management provider, secured $13 million in seed financing led by GV.

Workshop, an Omaha, Neb.-based email platform for internal communications, raised $12 million in Series A funding. McCarthy Capital led the round, which included participation from Ludlow Ventures and M25.

Kodex, a Boston-based law enforcement response technology provider, grabbed a $10 million seed round led by Andreessen Horowitz.

Tenet Energy, a New York-based electric vehicle financing platform, closed a $30 million investment, including $10 million in Series A funding led by Nyca Partners, along with a $20 million warehouse debt facility.

CoverSelf, a San Francisco-based startup whose technology helps reduce inaccuracies in healthcare claims, was seeded with an $8.2 million investment from 3one4 Capital and others.

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• Avoiding China has been a winning investment strategy. But it isn’t easy.
   
• I tried Meta’s ad-free Instagram subscription. This is what it was like.

This newsletter was compiled by Matthew Strozier, Marc Vartabedian and Zachary Cole.

WSJ Pro Venture Capital is a premium service of The Wall Street Journal. We cover venture capital and the global startup ecosystem. Share your tips, comments and questions: vcnews@wsj.com

The Team: Matthew Strozier, Yuliya Chernova, Brian Gormley, Angus Loten and Marc Vartabedian.

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