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AI search startup raises $26 million to offer rival to Google

March 28, 2023 Updated Tue., March 28, 2023 at 5:14 p.m.

The outsize presence of Google staffers among startup Perplexity AI's investors speaks to Google's ubiquity in the burgeoning field of artificial intelligence.  (David Gray/Bloomberg)
The outsize presence of Google staffers among startup Perplexity AI's investors speaks to Google's ubiquity in the burgeoning field of artificial intelligence. (David Gray/Bloomberg)
By Julia Love and Priya Anand Bloomberg

Perplexity AI, which makes a conversational search engine using artificial intelligence, has raised $25.6 million in a funding round led by New Enterprise Associates, the latest deal in the booming AI sector.

Perplexity is part of a growing wave of startups seeking to use artificial intelligence to loosen Google’s hold on online search. Among its investors are a striking number of Google’s own AI researchers.

The San Francisco-based startup offers up a new model of search. Users type simple queries on its website – one recently popular example: “Why can’t we digest grass?” – and Perplexity responds with short answers generated by its AI systems. Along with the funding round, the company on Tuesday launched an iOS app, after finding that a majority of its traffic comes from mobile devices.

The startup has quickly found a following, and has attracted a star-studded roster of investors, including Yann LeCun, the chief AI scientist for Meta Platforms. Its backers also include at least six current and former AI researchers at Google and sister company DeepMind, including Jeff Dean, Google’s senior vice president for research and AI, who was an angel investor in the company in its early stages, according to data from research firm PitchBook.

The outsize presence of Google staffers among the startup’s investors speaks to Google’s ubiquity in the burgeoning field of artificial intelligence – and to how the company’s foundational work in the field often spills over beyond its Mountain View, California campus.

Those putting their money behind new chat interfaces such as Perplexity and ChatGPT, the wildly popular chatbot from OpenAI, are betting the new tools will eventually siphon users away from Google’s core search product. Alphabet’s Google is seeking to move faster in AI, with executives declaring a “code red” shortly after the release of ChatGPT. Yet many of its competitors in the field are staffed by researchers who have left its AI labs – and, in the case of Perplexity, also funded by them.

Perplexity’s connections to the search giant can be traced back to its chief executive officer, Aravind Srinivas, who spent time as a researcher at DeepMind and the Google Brain research team before founding Perplexity. Those early relationships explain why so many Googlers have invested in Perplexity, said Bob Muglia, a former Microsoft executive who also invested in the startup.

“They believe in Aravind,” Muglia said. “They see this as a space that is very dynamic, and they’re taking advantage of that, and they’re learning. This is so much about learning.”

Google declined to comment. Dean did not respond to an interview request.

Perplexity’s funding round is relatively humble compared with other AI startups that have announced new hauls in recent weeks. Character.AI, also founded by former Googlers, recently raised $150 million. Adept, another AI startup, announced it had raised $350 million from investors including Spark Capital and General Catalyst. Srinivas said he raised a smaller round because the company didn’t need vast troves of cash. “It’s in our interest to stay lean and stay frugal and keep up with the same speed of execution,” he said.

Peter Sonsini, a general partner at investor NEA, joined Perplexity’s board as part of the financing deal. He said rounds that are too large can be distracting for companies. “People have these vanity rounds,” Sonsini said. “We’ve all seen in the last few years how it can go very wrong if you raise too much money before you need it.”

Another one of Perplexity’s investors is Ashish Vaswani, Srinivas’s mentor at Google before leaving the company for a startup. Vaswani wrote the landmark paper “Attention is all you need,” which introduced the concept of transformers, systems that help AI models zero in on the most important pieces of information in the data they’re analyzing. Some of the top startups in the field, including Perplexity, have built products using the technology.

“They were some of the earliest people to make a bet on it,” said Vaswani. “That requires courage.”

Since its launch in December, Perplexity has been releasing new features to users every week. “Perplexity is not even six months old and has shipped more product than most companies do in their entire lives,” investor Nat Friedman, the former CEO of software platform GitHub, wrote in a post on Twitter.

Perplexity’s traffic remains but a tiny fraction of Google’s, but it has been gaining traction. The company’s site received nearly 13 million visits in February, more than double the previous month’s total, according to digital intelligence firm Similarweb. startups such as Character.AI and have also seen their traffic soar in recent months, according to Similarweb, illustrating how the surge of interest in ChatGPT has lifted smaller players.

During a meeting with a Bloomberg reporter, Srinivas compared how Perplexity and Google could be used to search for auto insurance. Asked about the best type of insurance for a 2020 Hyundai, Perplexity delivered a tidy paragraph citing multiple sources; Google produced a long list of links. “At the end of the day, you just want answers,” Srinivas said.

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