OpenAI’s Latest Funding Round Comes With a $20 Billion Catch
A stipulation of the funding round, led by SoftBank, adds pressure to OpenAI’s efforts to convert to a for-profit company
OpenAI is finalizing a $40 billion funding round in what would be one of the largest startup financings of all time. The catch: The ChatGPT maker could lose out on half that amount if it fails to meet a key condition.
In order to receive the full sum, OpenAI has to successfully restructure into an independent for-profit company by the end of the year, according to people familiar with the situation. If it doesn’t, its lead investor—SoftBank—can pare back the funding round’s size to $20 billion.
The funding stipulation adds pressure to OpenAI’s ongoing restructuring talks, which require the blessing of its largest shareholder, Microsoft MSFT -3.02%decrease; red down pointing triangle. It is also subject to review by the California attorney general.
The details
SoftBank is expected to contribute up to $30 billion to the round and is syndicating the rest to other investors, including Microsoft, some of the people said. The funding round would value OpenAI at up to $300 billion, the Journal previously reported.
The OpenAI funding is divided across two tranches. The company will initially receive $10 billion and can receive up to another $30 billion at the end of the year if it completes the for-profit change, the people said. The second tranche would be dialed back to $10 billion if the restructuring doesn’t take place by then.
The context
Investors started to demand that OpenAI transition to a for-profit company after Sam Altman was briefly removed as chief executive in late 2023. The board said at the time that Altman had failed to be consistently honest in his communications but didn’t elaborate, leading OpenAI’s investors to argue that the unconventional nonprofit structure carried too many risks. He was reinstated days later.
OpenAI told investors in its fall funding round that it would return their money if the restructuring wasn’t completed within two years. The change faces major hurdles, including fending off a lawsuit from rival Elon Musk trying to block the restructuring. OpenAI also needs approval from its largest shareholder Microsoft, and the tech giant has made clear that it won’t do so without a fight.
The stakes
Should OpenAI fail to become a for-profit, it would be difficult for the company to continue raising the billions of dollars needed to fund its money-losing operations. Investors are so far backing OpenAI with the expectation that their current stake—in the form of convertible notes—will turn into traditional equity after the restructuring.
Only receiving half of the $40 billion would squeeze OpenAI’s already strained finances.
The startup is losing billions of dollars a year to train and operate its AI systems and pay for top-notch researchers, and it has committed $18 billion for Stargate, a separate data-center construction project blessed by President Trump. SoftBank has separately committed another $18 billion to Stargate.
In addition to its computing costs, OpenAI has content-licensing deals with companies like The Wall Street Journal’s parent company, News Corp, that give it data that can be used to train its models.