OpenAI Seeks to Raise Over $100 Billion, Led by ThriveCapital, As Valuation Soars

OpenAI Seeks to Raise Over $100 Billion, Led by ThriveCapital, As Valuation SoarsArtificial intelligence startup OpenAI is raising billions of dollars in a funding round that is expected to value the company at over $100 billion, marking its largest external capital injection since Microsoft's investment of about $10 billion in January 2023. The round is being led by venture capital giant ThriveCapital, which is expected to invest around $1 billion, while Microsoft is also poised to increase its stake

OpenAI Seeks to Raise Over $100 Billion, Led by ThriveCapital, As Valuation Soars

Artificial intelligence startup OpenAI is raising billions of dollars in a funding round that is expected to value the company at over $100 billion, marking its largest external capital injection since Microsoft's investment of about $10 billion in January 2023. The round is being led by venture capital giant ThriveCapital, which is expected to invest around $1 billion, while Microsoft is also poised to increase its stake.

OpenAI's burgeoning success in the AI space is becoming increasingly evident. With the Silicon Valley AI race intensifying, companies are scrambling to build cutting-edge AI systems, vying for dominance in an industry widely predicted to revolutionize the economy.

OpenAI's latest valuation reflects its significant strides in artificial intelligence. Late last year, OpenAI was valued at $860 billion in a previous funding round, where some employees sold their shares. ThriveCapital, founded by Josh Kushner 15 years ago, has maintained a close relationship with OpenAI and its CEO, Sam Altman, having invested hundreds of millions of dollars in the company over the past year.

The competition in the AI landscape is heating up. Google has launched its own AI products and alongside Amazon, has poured $6 billion into Anthropic, a rival founded by former OpenAI executives. Meta, too, has developed its own advanced AI models, releasing them for free and integrating them into popular apps like Facebook and Instagram.

ChatGPT remains the market leader, attracting hundreds of millions of users each month. To maintain its lead, OpenAI needs to invest billions to stay at the forefront of research and continue developing innovative products capable of understanding natural language commands and generating high-quality text, images, and videos.

Recent disclosures about high-priced private equity transactions reveal that one or more existing OpenAI shareholders have recently been in talks to sell their shares, deals that would value the company at around $1030 billion. Any new investors' valuation expectations are also likely to remain at or above this level, excluding potential future fundraising efforts.

For Altman, raising a massive amount of capital is crucial to fulfilling his vision of general-purpose AI, aiming to create autonomous systems that surpass human capabilities in most economic tasks. This ambitious goal is reliant on vast amounts of data processed by supercomputer clusters, which require expensive and power-hungry chips. OpenAI spent over $100 million to develop its most powerful AI model, GPT-4, and the next-generation model under development is expected to be even more expensive.

Despite the hype surrounding AI, touted as a technology that will transform the way humans and businesses work and create, it remains a highly speculative field with revenue far from matching the investments made by both investors and tech companies. Earlier this year, OpenAI's annualized revenue reached $3.4 billion, according to sources.

What sets OpenAI apart is its non-profit nature. Investors don't directly own shares but participate by investing in its for-profit subsidiary and receiving a share of its profits. Since 2019, Microsoft has invested $13 billion in OpenAI, securing a 49% share of the company's profits. Some of this money flows back to Microsoft as OpenAI hosts its technology on the tech giant's Azure cloud platform.

Microsoft's continued investment in OpenAI highlights the vital nature of their partnership, even amid intense industry competition and the emergence of new collaborations. In July, Microsoft voluntarily stepped down from its non-voting seat on OpenAI's board, a move partly seen as a response to regulatory scrutiny of their relationship. Simultaneously, Microsoft recently classified OpenAI as one of its competitors in the AI and search space in a regulatory filing.

Microsoft is also aggressively expanding its AI footprint. Earlier this year, the company recruited the CEO and core team of OpenAI rival InflectionAI, focusing on developing consumer-grade AI tools. Microsoft CEO Satya Nadella has consistently bet on multiple AI startups.

Meanwhile, OpenAI is collaborating with Apple to infuse cutting-edge AI capabilities into the next generation of iPhones.

OpenAI's massive fundraising round signifies the immense potential of AI and signals the accelerating pace of this technological revolution. OpenAI's success will largely hinge on its ability to translate powerful technology into practical applications that create value for users. Ultimately, whether OpenAI's valuation can continue to climb remains to be seen.