Anthropic Abandons $7 Billion Deal for Israeli AI Firm Descartes

AI company Anthropic has reportedly backed out of a nearly finalized $6-7 billion deal to acquire Israeli startup Descartes, leaving the founders and investors in a difficult position. The acquisition was deep into its due diligence phase when Anthropic discovered undisclosed issues. While financial irregularities are unlikely for a three-year-old company with around 100 employees and tens of millions in annual sales, the focus is on potential problems with Descartes' core technology. Descartes claims its technology can dramatically reduce AI usage costs by optimizing chip performance and is designed to be chip-agnostic, working with various hardware like Nvidia, Google, and Amazon chips.

Speculation surrounds Anthropic's reasons for withdrawal, ranging from discovering the technology isn't as scalable as claimed to concerns about its effectiveness at large scales. More conspiratorial theories suggest Anthropic may have learned Descartes' secrets to develop its own competing technology, or that Qatar's sovereign wealth fund, a significant Anthropic shareholder, vetoed the deal due to geopolitical reasons. Representatives from Descartes, surprised by the news, are attempting to downplay the situation, suggesting logistical or patriotic reasons, such as Anthropic's reluctance to open an Israeli operational center during its IPO process or Descartes' founders' refusal to relocate to San Francisco.

However, these explanations are questioned, as such logistical issues typically arise earlier in negotiations, not at the final stages. Furthermore, Descartes' major investors, including Sequoia Capital, Benchmark, and Radical Ventures, are unlikely to forgo a lucrative exit over relocation concerns for 100 employees. The collapse of the deal significantly impacts Descartes' future prospects, as few companies may be willing to acquire a company that Anthropic, after extensive review, decided against purchasing. Previously, Descartes had advanced negotiations with Nvidia, which was reportedly willing to pay more than Anthropic, but Descartes' founders, Dean Laiter-Dorf and Moshe Shilo, favored the Anthropic deal, which was to be paid largely in Anthropic stock.

Nvidia has since announced its $12.9 billion acquisition of Hugging Face. Anthropic, currently a private company preparing for an IPO in the next two months, faces its own timing challenges for such a large acquisition. The situation also represents a setback for Israel's high-tech sector, particularly its AI capabilities, which were hoping the deal would validate the depth of its AI innovation beyond cybersecurity. The potential establishment of an Anthropic office in Tel Aviv, initially a promising prospect, now appears distant.