OpenAI secures $6.6 billion in funding, now valued at $157 Billion

OpenAI has concluded a deal to raise $6.6 billion in new funding that will increase the valuation of the artificial intelligence firm to $157 billion, further cementing efforts to build world-beating generative AI, according to a report by Bloomberg.

The funding round was led by Thrive Capital, a venture capital firm headed by Josh Kushner, which injected $1.3 billion. Microsoft Corp., the largest investor in OpenAI, added around $750 million to that amount, as the company had already invested in the startup to the tune of $13 billion, according to a person familiar with the situation. Other investors include Khosla Ventures, Fidelity Management & Research Co., and Nvidia Corp., the chipmaker whose processors are crucial to the AI boom. Microsoft declined to comment.

The deal is one of the largest private investments ever into a startup, making OpenAI one of the three largest venture-backed startups, alongside Elon Musk's SpaceX and TikTok owner ByteDance Ltd. The investment reflects confidence in AI's potential and its appetite for extremely costly research powering its advancement.

Other investors participating in the company's fundraising round include Tiger Global Management, which invested $350 million, and Altimeter Capital, sources said, whose participation reached at least $250 million.

International investors in the round included SoftBank Group Corp. and the new Abu Dhabi-based tech investment firm MGX. SoftBank's contribution was $500 million, according to one of the people, who requested anonymity as the information is confidential. Venture firm Coatue also participated.

In a statement, the firm said it would use the funds to propel forward AI research and its computing capacity. “AI is already personalising learning, accelerating healthcare breakthroughs and driving productivity,” OpenAI Chief Financial Officer Sarah Friar said. “And this is just the start.”

The sky-high valuation of OpenAI has transfixed Silicon Valley. “People are shocked at 150 billion bucks,” Altimeter Chief Executive Officer Brad Gerstner said during a speech at the Madrona IA Summit in Seattle on Wednesday. Noting reports that the startup expects more than $10 billion in revenue next year - adding that a 10 times projected revenue valuation isn't outrageous for a company near a public offering, like Google and Facebook. According to the latest deal, the valuation of OpenAI exceeds $150 billion pre-money, before including the dollars raised in this round.

Gerstner hopes OpenAI will go public soon, as he described it as the most obvious next step for the startup, which he called “the most important AI company in the United States, next to Nvidia.”

Apple Inc. didn't join the deal, but the company had previously discussed an investment, as Bloomberg reported. The iPhone maker has a partnership with OpenAI, where ChatGPT integration will be implemented on Apple devices through its Siri voice assistant. As part of that deal, Apple had considered joining a board observer position at OpenAI, but the plans were put to the side, people familiar with the matter told Bloomberg.

Some of the investment rounds were raised through so-called special purpose vehicles, or SPVs, in which backers pool capital from a broader range of investors to acquire a portion of the shares. In addition to its direct stake, Thrive organised an SPV to invest in the firm, one person said. OpenAI declined to comment on the SPVs.

The deal comes after a chaotic year for OpenAI. Last November, the company's board ousted and then reinstated its CEO, Sam Altman. Subsequently, the company overhauled its board, brought on hundreds of new employees, and lost several key leaders, including co-founder Ilya Sutskever and Chief Technology Officer Mira Murati.

Meanwhile, OpenAI is exploring a shift from its nonprofit corporate structure - an unusual arrangement that has rankled some investors - to a for-profit model. Such a move would likely soothe irate investors but could pose legal challenges. Under this new structure, OpenAI has discussed giving Altman equity in the company - a stake that could be worth over $10 billion, though the board says it hasn't discussed actual figures.

OpenAI caused a buzz in Silicon Valley on the potential of AI when the company launched ChatGPT in 2022. According to the company, the chatbot answers user inquiries in a very human-like fashion and boasts the third-largest weekly active user base at 250 million. Its paid service, ChatGPT Plus, has 11 million subscribers, said one person. According to a Bloomberg report, its business-focused service has topped 1 million users.

Some smaller firms have recently come into view with the purpose of vying with OpenAI, with some being started by former OpenAI employees, such as Anthropic and Safe Superintelligence. Even more intense, formidable competitors to OpenAI are larger tech companies, such as Google and Amazon.com Inc., which are developing their own AI models.

In this funding round, OpenAI allegedly asked investors not to invest in rival companies like Anthropic or Musk's AI startup xAI, according to a person familiar with the matter.  Bloomberg earlier reported that leading venture capital firm Sequoia Capital, which backed Safe Superintelligence, would not participate in the newest fundraising.