OpenAI Seeks New Valuation of Up to $90 Billion in Sale of Existing Shares
Startup was valued at about $29 billion in share sale earlier this year
OpenAI is talking to investors about a share sale that would value the artificial-intelligence startup behind ChatGPT at between $80 billion to $90 billion, almost triple its level earlier this year.
The startup, which is 49% owned by Microsoft MSFT -1.70%decrease; red down pointing triangle, has told investors that it expects to reach $1 billion in revenue this year and generate many billions more in 2024, people familiar with the discussion said.
OpenAI ignited the current artificial intelligence fervor in Silicon Valley by releasing ChatGPT in November. While the basic version of the app is free, the company has been able to generate revenue mainly by charging individuals for access to a powerful version of ChatGPT and licensing the large language models behind that AI bot to businesses.
The deal is expected to allow employees to sell their existing shares as opposed to the company issuing new ones to raise additional capital. OpenAI representatives have begun pitching investors on the deal, the people said, though it is possible the terms could change.
The company is aiming to sell a few hundred million dollars worth of shares to Silicon Valley investors. In the past, venture firms like Sequoia Capital and Khosla Ventures have purchased OpenAI shares.
A valuation of $80 billion or more would make OpenAI one of the most highly-valued global startups, behind Elon Musk’s SpaceX and TikTok owner ByteDance.
The transaction would immediately give Microsoft a huge paper profit. The tech giant invested billions of dollars in the startup in January to help finance the intensive computing costs necessary to train its advanced AI models. At the time, OpenAI was valued at around $29 billion.
The company, run by Chief Executive Sam Altman, only began generating significant revenue after the release of ChatGPT in November, and its fast growth speaks to the speed at which some companies are embracing generative AI products.
This employee share sale could set a minimum price for any such additional fundraising from outside investors. OpenAI is widely expected to raise more money by issuing new shares as it seeks to keep up with computing costs required to develop and maintain its AI systems.
Altman is already fielding intense interest from investment giants like Masayoshi Son’s SoftBank, people familiar with the matter say. A capital raise would be separate from the tender offer process under way now.
OpenAI was formed in 2015 as a research-oriented nonprofit backed by Musk and other investors to build safe AI technology. In 2019, it shifted to a “capped profit” structure so it could accept billions of dollars in investments it needed to pay for computing power and hire senior AI talent from tech giants like Alphabet’s Google.
The shift triggered a backlash among a large faction of safety researchers at OpenAI, who worried that the change would lead the organization to give priority to profits over the safe development of the technology, The Wall Street Journal reported. Some of those researchers eventually left to start a rival lab called Anthropic, which signed an investment of as much as $4 billion from Amazon.com this week.
Altman has said he doesn’t plan for OpenAI to go public or sell itself to a buyer, meaning that these routine sales of existing shares are an important way for employees to cash out on stock.
OpenAI is intent on Microsoft holding a minority stake in the company, people familiar with the matter said, meaning that the tech giant likely wouldn’t be able to buy shares offered in any financing that would push its stake above 50%.