OpenAI’s new round of funding is likely to come in the form of a convertible bond, according to sources with direct knowledge of the matter. The $150 billion valuation will depend on whether the ChatGPT founder manages to change its corporate structure and remove the cap on investor profits, they said.
Details of the $6.5 billion financing, which were not previously disclosed, show how far OpenAI, the world’s most valuable artificial intelligence startup, has transformed itself from a research-based nonprofit, and what structural changes it is willing to make to attract even more investment to fund its pricey endeavor of building artificial general intelligence (AGI), or AI that surpasses human intelligence.
The sources added that the massive funding round has been met with great interest from investors and could be finalized within the next two weeks, given OpenAI’s rapid revenue growth.
Existing investors like Thrive Capital, Khosla Ventures, and Microsoft are expected to participate. New investors including Nvidia and Apple are also planning to invest. Sequoia Capital is also in talks to return as a returning investor.
If the restructuring fails, OpenAI will have to renegotiate its valuation with investors at which point their shares will be converted, likely at a lower amount, said the sources, who asked not to be identified to discuss private matters.
OpenAI declined to comment.
Lifting the profit cap would require approval from nonprofit OpenAI’s board, which includes CEO Sam Altman, entrepreneur Bret Taylor and seven other members.
The company has also been in talks with lawyers about transforming its nonprofit structure into a for-profit corporation, similar to those used by competitors such as Anthropic and xAI, the sources added, confirming media reports.
It’s unclear whether such fundamental corporate structural changes could happen. Removing the profit cap that has limited the potential gains for investors in OpenAI’s for-profit subsidiary would give early investors an even bigger payout.
It could also raise questions about OpenAI’s governance and departure from its nonprofit mission. OpenAI said the cap was put in place to “encourage them to research, develop, and deploy AGI in a way that balances commerciality with safety and sustainability, rather than focusing on pure profit maximization.”
Founded in 2015 as a nonprofit research project dedicated to creating artificial intelligence for the benefit of humanity, the San Francisco-based AI Lab is now controlled by its nonprofit parent organization.
The company accelerated its commercialization efforts by selling subscription-based services like ChatGPT to consumers and enterprises, which now have more than 200 million users.
Existing investors are required to meet a return on investment cap, and any additional profits must be donated to the nonprofit.
Returns were capped at 100x the investment for investors in OpenAI’s first funding round. “We expect this multiple to be lower in future rounds,” the company said in a 2019 blog post detailing the structure.
OpenAI has used this model to raise more than $10 billion in recent years, most of it from Microsoft. Its last valuation of $80 billion came in February in a tender offer in which the company sold existing shares led by Thrive Capital.
© Thomson Reuters 2024
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