OpenAI in Talks with UAE Investment Fund for $7 Billion Fundraising
The Takeaway
• Investment could receive U.S. regulatory scrutiny
• Existing investors Thrive, Khosla planning special purpose vehicles to invest
• Arrangements speak to complicated nature of massive fundraise
OpenAI has told investors it may try to raise as much as $7 billion in a massive fundraising round that would value it at $150 billion. It is in talks with MGX, the $100 billion United Arab Emirates-backed investment fund, according to people familiar with the matter, as well as tech and VC investors such as Microsoft and Thrive Capital.
A spokesperson for MGX said that “as part of its regular investment mandate, MGX has been continuously engaged in discussions with partners around the world regarding investments in the technology space.” A spokesperson for OpenAI didn’t respond to requests for comment.
Michael Klein, a veteran investment banker with close ties to Middle Eastern clients, recently has been advising OpenAI on investor relationships in the region, according to a person who spoke to Klein and two people close to OpenAI.
MGX was launched this year by state-owned Mubadala Investment Co, and G42, a tech conglomerate that has a partnership with OpenAI, which is providing its AI to companies in the country. Microsoft, OpenAI’s biggest backer, is also on the board of G42.
Money also could come from sovereign wealth fund Abu Dhabi Investment Authority. Sheikh Tahnoun bin Zayed Al Nahyan, the deputy ruler of Abu Dhabi, serves as board chair for both MGX and ADIA.
Both would join several big tech companies as investors in the round. Microsoft, which has already sunk $13 billion into OpenAI, expects to participate in the round, but hasn’t decided on how much of its subsequent investment will be in cash, computing or both, according to a person familiar with the company’s plans. Nvidia and Apple also plan to invest, according to OpenAI investors.
OpenAI could face hurdles in raising money from the Middle East. The Committee on Foreign Investment in the United States has become more active and aggressive scrutinizing Middle Eastern investments in U.S. biotechnology and artificial intelligence companies, due to the connections these government-backed investors have with China and Russia, according to multiple lawyers, including a former CFIUS adviser.
But OpenAI, which is growing rapidly but burning cash also at a fast rate, likely only has so many private investors it can tap for the amount of capital it wants to raise to keep training and running advanced AI models.
Some of the money OpenAI is trying to raise will buy out employee shares, a person briefed on the fundraising said. It’s not clear the size of that employee tender. Earlier this year, Thrive led the sale of existing investor shares in a sale that valued it at $86 billion.
OpenAI investors have had to swallow an unusual capital structure. It’s a for-profit unit of a nonprofit, and investors get profit-sharing units rather than traditional equity for their investment. Altman and the organization’s board have been working on changing the structure to a for-profit business.
Khosla, Thrive SPVs
New York-based Thrive Capital, an existing investor in OpenAI, has already committed more than $1 billion to the OpenAI round, according to The Wall Street Journal.
Khosla Ventures, another early OpenAI investor, is also expected to contribute via a special-purpose vehicle, according to three people familiar with the matter. Khosla aims to raise money from their limited partners, rather than investing solely out of their venture funds, the people said.
These vehicles have become more popular in the past two years as VC firms seek to lower a particular company’s concentration in a fund, as well as give their limited partners direct exposure to a private stock.
To navigate the complicated structure, OpenAI is leaning on a coterie of advisers. Klein, the investment banker with ties to the Middle East, has a history with Altman.
Klein, who created several blank-check companies during the SPAC boom, founded a SPAC alongside Altman that last year took public Altman-backed Oklo, a nuclear-fission startup.
Klein runs his own boutique investment bank and advised Saudi Arabia on its multi-billion-dollar share sale of Aramco stock earlier this year. He couldn’t be reached for comment.