Version française/French version: LINK
Created with €15,000 in May 2023, the Mistral AI quickly raised €105 million. A second funding round of €385 million in December 2023 values the company at €1.86 billion, turning it into a unicorn. The co-founders still control 44.6% of the voting rights after the second round, but investors have likely negotiated liquidity clauses. A partial cash out has simultaneously ensured the founders a minimum profit regardless of the future development of their startup. Two exit scenarios, one at €1 billion and another at €5 billion, are being explored for both the founders and the investors.
E. Krieger
…
Behind the high-profile launch of Mistral AI in May 2023 looms the shadow of Open AI, the company behind Chat GPT, valued at $27 billion just a month earlier. In comparison, Mistral AI appears as a middleweight with its €1.86 billion valuation at the end of 2023. However, this operation takes place seven months after its creation, challenging the development standards of European startups.
Are the founders, advisors, and early shareholders already rich, as several media outlets suggest, or is this wealth merely virtual? We will attempt to decipher the initial financial steps of Mistral AI’s development using available public data.
The genesis of unicorns, creatures valued at over a billion dollars, follows particular rules. In the case of Mistral AI, the story begins with three thirty-year-olds, doctor-engineers trained at prestigious institutions (Polytechnique and Ecole Normale Supérieure) who started their careers at Meta/Facebook for Arthur Mensch and at Google DeepMind for Timothée Lacroix and Guillaume Lample.
Their respective journeys led to the creation of open-source language models fueled by public data. The first published model reportedly outperformed Open AI’s Large Language Model (LLM) in several comparative tests and exhibited better cost-performance trade-offs. Thus, the technological battle commenced.
Genesis of Mistral AI SAS
The bylaws of the Simplified Joint Stock Company (SAS) Mistral AI indicate an initial share capital of €15,000, consisting of 1.5 million shares, held at 95.3% in equal parts by the three operational co-founder doctor-engineers. The remaining 4.7% is held equally by four individuals or entities: Cédric O, former French Secretary of State for Digital Transition, the holding company Alan Tech, Jean-Charles Samuelian, and Charles Gorintin, co-founders and leaders of Alan.
Cédric O has solid experience in politics and business, while Jean-Charles Samuelian and Charles Gorintin have completed five funding rounds since the creation of Alan in 2016, a French health insurance unicorn.
Less than two months after its creation, Mistral AI closed a financing round of €105 million, valuing the company at €240 million. This sets the founders’ shares at €135 million pre-money. These shares were then virtually worth 9,000 times more than the initial €15,000 investment.
2 Financial Rounds of €490 Million in 6 Months
This first round in mid-June was led by the Californian fund Lightspeed Venture Partners, alongside several business figures: Xavier Niel (Iliad), Rodolphe Saadé (CMA CGM), and Eric Schmidt, a former CEO of Google, reinforcing Mistral AI’s proximity to the former employer of two startup co-founders. European investors like BPI also complemented this prestigious round.
Following this operation, investors controlled 43.75% of Mistral AI’s capital, while the founders theoretically retained control with 56.25%.
However, the development of such a company requires substantial capital. In December 2023, the startup, now with 22 employees, entered the unicorn club by announcing a funding round of €385 million with Andreessen Horowitz, accompanied by Salesforce, Nvidia, and BNP Paribas.
This operation, 3.7 times larger than the initial investment, was less dilutive than the first round, given the valuation of €1.86 billion. The new investors held 20.7% of the capital after this operation. Mistral AI’s pre-money valuation was thus €1.48 billion, multiplied by 6.15 in 6 months – a windfall for both founders, who still control 44.6% of the voting rights, and for first-round investors if the company is sold for this €1.86 billion amount alone.
Potential Gains for Founders and Investors
But who will pocket how much if Mistral AI is sold for an amount lower or higher than the « unicorn rate »?
Venture capital is a high-stakes sport where the risk of failure is inherent to the profession. Attaining unicorn status is not a guarantee of immortality. In case of a resale for an amount less than the capital injected by investors, they will be paid first through preferential liquidity clauses. In short, if Mistral AI is sold for an amount equal to or less than €490 million, the founders will receive nothing.
This likely explains why the founders negotiated a « partial cash out » of €1 million per founder in the last capital increase. This share sale ensures a profit regardless of Mistral AI’s development but also reduces their stock of shares. If this sale occurred based on €100 per share, a value significantly higher than the first round, each operational co-founder would have sold 10,000 shares. This is negligible if you own nearly 480,000 shares, as each operational co-founder does, but less so if you have fewer than 20,000.
Taking these liquidity clauses into account, we can model two scenarios for Mistral AI’s resale, specifying that we have not considered the impact of stock options necessary to attract talent, which dilute the participation of all other shareholders by nearly 10% per funding round. We have also not integrated the impact of partial sales, which reduce the founders’ future profit.
In summary, according to our calculations:
- If Mistral AI is sold for €1 billion without a new funding round, investors will recover 77.2% of the sale proceeds. The founders will share €228 million.
- If Mistral AI is sold for €5 billion, nearly ten times the invested capital, investors will recover 59.8% of this amount, nearly €3 billion. The founders will share just over €2 billion.
These figures reflect the stakes of these conversational AIs that are disrupting significant aspects of human activity. Google (or Meta) could set its sights on Mistral AI. Such an acquisition would represent only a few weeks of profits for such an acquirer keen on not being surpassed by the duo formed by Open AI and Microsoft.
The race for power is underway, combining the best talents and considerable amounts of capital.
