Investors seeking to buy into OpenAI’s latest $6bn-plus funding round are making an unprecedented bet that the ChatGPT-maker will become the world’s dominant artificial intelligence company and be worth trillions of dollars.
The San Francisco-based start-up is finalising a new fundraising valuing the company at $150bn. Thrive Capital, Josh Kushner’s venture capital firm, has already provided at least $1bn to the company in recent weeks, according to people with knowledge of the deal.
OpenAI aims to raise an additional $5bn or more. Apple, Nvidia and Microsoft — the three most valuable technology companies in the world — are in talks to join the funding round. Others seeking to invest are New York-based Tiger Global and United Arab Emirates-backed fund MGX, according to multiple people with knowledge of the discussions. The deal is expected to close imminently.
However, other leading tech investors, including Andreessen Horowitz and Sequoia Capital — Silicon Valley’s top venture capitalists and existing OpenAI backers — are sitting out of the round, according to people with knowledge of the matter.
Investors in the deal said it was highly unusual in its scale and structure. Venture investors such as Thrive and Tiger typically write far smaller cheques for less established start-ups, hoping for 10 to 100 times their money back.
To achieve such a return with OpenAI, the company would need to grow in the coming years to become worth at least $1.5tn; larger than Facebook parent Meta and Warren Buffett’s Berkshire Hathaway.
Many are persuaded it will. “We’re talking about the path to building a trillion-dollar company,” said a partner at an investment firm that has backed OpenAI. “I don’t think this is unreasonable.”
The advent of generative AI represented “the biggest platform prize since cloud or the internet”, worth multiple trillions of dollars of economic value, they said.
Despite the huge scale of the fundraising, OpenAI has not struggled to attract demand, according to people with knowledge of the deal. As well as writing its own cheque to OpenAI, Thrive is also launching a special purpose vehicle through which other institutions can take a stake in OpenAI, they added.
The lofty hopes for OpenAI are remarkable even for Silicon Valley, where only a handful of Big Tech groups have grown to become trillion-dollar giants. Other big investors are sceptical that the OpenAI deal makes financial sense.
“How would you ever get to a venture-style return on an investment of this sort?” asked the chief investment officer of a US foundation. “I’m not sure what the maths is there, or if there is any maths.”
OpenAI, Thrive, Tiger and Sequoia declined to comment on the deal. Andreessen did not respond to a request for comment. MGX said it had “been continuously engaged in discussions with partners around the world regarding investments in the technology space”.
To achieve the desired returns on investment, OpenAI will need to overcome fierce competition from the wealthiest tech companies in the world such as Google and Meta. It must find the resources to train ever-more expensive models and manage the transition from a fast-growing, chaotic start-up to a corporate behemoth.
OpenAI’s revenues have shot up to about $3.6bn on an annualised basis since the launch of ChatGPT almost two years ago, according to people with knowledge of the group’s finances. But it is still burning through well over $5bn a year and is “not close to breaking even”, as it invests in new models and products in a bid to stay ahead of competitors.
While the cost of training cutting-edge models has winnowed competition, it also obliges start-ups to perpetually seek new investment. Billions more in capital would give OpenAI an edge over Anthropic and Elon Musk’s AI start-up xAI, both of which have raised multibillion-dollar rounds in recent months.
“I don’t think there are going to be 20 foundation model companies, certainly not unless costs come down,” said another investor in OpenAI. “You either win or you fade into obscurity and become MySpace.”
More important still could be closer ties to strategic investors. “[OpenAI] have Microsoft, the biggest enterprise company on the planet. If I could pick another partner it would be Apple, the biggest consumer company on the planet,” said one investor in the company.
“I’m walking into a gunfight with Google and Facebook and I have Microsoft and Apple behind me. It’s not such a bad thing from a distribution and branding perspective,” they added.
Others are deterred by the eye-watering scale of investment and fearful of being overly exposed to a single company. Both Sequoia and Andreessen have also invested in xAI rather than going all-in on OpenAI.
In addition, there are concerns about whether OpenAI can sustain its aggressive growth. The company was rocked by a boardroom crisis last November, in which chief executive Sam Altman was first ousted and then reinstated over a five-day period.
Plans to simplify OpenAI’s unique corporate structure, which came under scrutiny during that crisis, are being discussed. The current fundraising is not contingent on a restructure, according to multiple people with knowledge of the situation.
OpenAI has shed several senior researchers this year, including three of the group’s 11 co-founders. It has also been drawn into a string of legal battles — including high-profile cases against Musk, another co-founder who left in 2018, and the New York Times.
There are also signs of strain in the group’s relationship with Microsoft, which has committed $13bn to OpenAI and hitched its AI strategy to the start-up’s success. The companies are increasingly competing for customers, while Microsoft is building its own consumer AI team under Inflection founder Mustafa Suleyman and has designated OpenAI as a “competitor” in its annual report.
OpenAI’s backers say the company’s growing pains are typical for a hot start-up, drawing parallels to the early tumult at Google and Apple.
They point to a string of new hires, including Sarah Friar, OpenAI’s first chief financial officer, and a revamped board packed with corporate experience as a sign of a more sober approach.
“The stakes are high,” said one investor. “But there has never been a company that has both a dominant enterprise position and a dominant consumer position early on . . . this type of business tends to be ‘winner takes most’: you’re not going to have two ChatGPTs on your phone.”
Additional reporting by Stephen Morris in San Francisco
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