Microsoft's $16.3 Million Mistral AI Investment Prompts Investigation from European Union Watchdog

Microsoft prompted a European Union watchdog investigation following the tech giant's decision to invest $16.3 million into Mistal AI, a Paris-based AI startup working on foundational models.

The startup recently announced a new large language model that could rival OpenAI's GPT-4. On the other hand, Microsoft and Mistral AI buried the news, or at least an important part of it. As part of the new deal, the tech giant will invest in the startup and it says that the money would convert into equity in Mistral's next funding round.

Microsoft Invests in Mistral AI

The Paris-based startup reached a roughly $2 billion valuation following its most recent funding round in December last year. During that time, Mistral AI was able to raise roughly $415 million, with Andreessen Horowitz (a16z) as the one leading the investment round.

Previously, the company raised a $113 million seed round only a few weeks after its founding. If Mistral AI is able to at least maintain its valuation during its next funding round, it would result in Microsoft owning less than 1% in equity in the French AI company, as per TechCrunch.

The startup had also just revealed Mistral Large, its flagship large language model designed to compete against other top models, such as GPT-4 and Claude 2. Unlike the company's prior releases, the model is not open-source. Developers can instead access it through Mistral's own API platform.

Mistral AI and Microsoft have also signed a distribution partnership deal for Azure, which would end with the former being able to attract more customers using the new distribution channel. This also means that Azure customers will be able to access Mistral's models through its model catalog.

Furthermore, customers who wish to remain in the Microsoft ecosystem will have another option on top of OpenAI's models. With the development, the tech giant is now an investor in OpenAI's capped profit subsidiary and Mistral AI. This comes as Microsoft's relationship with OpenAI is currently under scrutiny from EU and UK regulators.

The investment took lawmakers by surprise on Monday as antitrust authorities are already investigating Microsoft's partnership with OpenAI. According to Reuters, the European Commission had previously warned that the firms' relationship could constitute a breach of EU competition rules.

Prompting International Investigation

The situation comes as Mistral allegedly lobbied for exemptions for some AI systems behind closed doors. It also warned that overly strict laws would only hamper European startups' chances of competing against American-based giants.

The startup's deal with Microsoft has led some lawmakers to question the company's motivations. Other than Germany and Italy, France also pushed for exemptions for firms making generative AI models. This is part of an effort to protect European startups such as Mistral from over-regulation.

Recently, EU countries agreed on the technical details of the EU's AI Act, but this was only done after negotiations. During these, France, particularly, pushed for concessions for open-source companies such as Mistral.

The EU's competition watchdog is also set to look into the partnership between the two companies. The watchdog started looking into the tech giant's relationship with OpenAI last month, said EuroNews.