Paris-based AI startup Mistral AI made waves yesterday with the announcement of its latest breakthroughs, including a formidable large language model poised to rival OpenAI's GPT-4, alongside a strategic distribution collaboration with tech giant Microsoft. However, the partnership's financial underpinning, a significant investment by Microsoft, was somewhat overshadowed in the initial coverage.As an integral facet of the collaboration, Microsoft committed to a €15 million investment (equivalent to $16.3 million) in Mistral AI, slated to convert into equity during the French startup's subsequent funding round. Crucially, this infusion of capital will not alter Mistral AI's valuation, with Microsoft's ownership stake contingent upon the startup's valuation in the forthcoming funding cycle.

Mistral AI had previously achieved a valuation of approximately $2 billion after a substantial funding round in December 2023, which saw the injection of €385 million (roughly $415 million), led by venture capital firm Andreessen Horowitz (a16z). This followed an impressive seed round of $113 million secured shortly after the company's inception.Despite potential fluctuations in ownership dynamics, should Mistral AI maintain its valuation trajectory, Microsoft's equity share in the company is projected to remain below 1%. Simultaneously, Mistral AI introduced its flagship product, Mistral Large, a formidable large language model positioned as a direct competitor to established models like GPT-4 and Claude 2. Unlike previous iterations, Mistral Large is not open source, accessible solely via Mistral's proprietary API platform.

In tandem with the investment, Mistral AI and Microsoft finalized a distribution partnership aimed at leveraging Microsoft's Azure platform. This collaboration is anticipated to bolster Mistral AI's market presence significantly, providing Azure customers with access to Mistral's models through the platform's model catalog. This move diversifies options for customers invested in the Microsoft ecosystem, complementing existing offerings such as those from OpenAI and Meta's Llama models, also available on Azure.Microsoft's financial foray into Mistral AI underscores its expanding footprint in the AI landscape, cementing its status as an investor not only in Mistral AI but also in OpenAI's capped profit subsidiary.

This intensified involvement draws regulatory scrutiny, particularly from the European Commission. A spokesperson confirmed that the EC would evaluate the investment deal between Microsoft and Mistral AI in the context of ongoing examinations into relationships between major tech firms and generative AI entities.The subdued announcement from Microsoft regarding the investment aligns with broader strategic considerations, given the regulatory spotlight on tech investments in the AI domain. For Mistral AI, the convergence of American backing and a shift towards a closed-source model inevitably raises comparisons with its U.S. counterparts, challenging the narrative of a distinct European AI champion.