OpenAI Seeks $10 Billion Funding, Valued at Over $100 Billion, Microsoft Continues Investment

OpenAI Seeks $10 Billion Funding, Valued at Over $100 Billion, Microsoft Continues InvestmentArtificial intelligence startup OpenAI is pursuing a new round of funding, aiming to raise billions of dollars and push its valuation above $100 billion. Venture capital giant ThriveCapital will lead the round, expected to invest around $1 billion

OpenAI Seeks $10 Billion Funding, Valued at Over $100 Billion, Microsoft Continues Investment

Artificial intelligence startup OpenAI is pursuing a new round of funding, aiming to raise billions of dollars and push its valuation above $100 billion. Venture capital giant ThriveCapital will lead the round, expected to invest around $1 billion. Microsoft is also poised to increase its investment.

This will be OpenAI's largest external capital injection since Microsoft invested roughly $10 billion in January 2023, showcasing its strong momentum in the AI space. As competition heats up in Silicon Valley, companies are racing to build top-tier AI systems, seeking dominance in an industry many believe will revolutionize the economy.

Notably, OpenAI's last fundraising round in late last year valued the company at $860 billion, with some employees selling their shares. ThriveCapital, founded 15 years ago by Josh Kushner, has a close relationship with OpenAI and its CEO Sam Altman. Thrive has invested hundreds of millions of dollars in OpenAI since last year. It's unclear which other investors are participating in this new round.

The competition in the AI space is intensifying. Google has launched its own AI products and, along with Amazon, has invested $6 billion in Anthropic, a rival company founded by former OpenAI executives. Meta is also not holding back, developing and releasing its advanced AI models for free, integrating them into popular apps like Facebook and Instagram.

ChatGPT remains the market leader, attracting hundreds of millions of users monthly. To maintain its lead, OpenAI needs to invest billions of dollars 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 on high-priced private equity deals reveal that one or more existing OpenAI shareholders have been in talks to sell their stakes, valuing the company at approximately $1030 billion. Any new investor's valuation expectations would also be at or above this level, excluding potential future fundraising.

For Altman, raising massive funds is crucial for achieving his vision of artificial general intelligence, building autonomous systems that surpass human capabilities in most economic tasks. This ambitious goal necessitates massive data processing by supercomputer clusters, relying on expensive and energy-intensive chips. OpenAI invested over $100 million to build its most powerful AI model, GPT-4, and the next generation models under development are expected to be even more costly.

While AI holds immense promise, seen as a technology that will fundamentally change how humans and businesses work and create, it remains a highly speculative field, with revenues falling far short of the investments made by investors and tech companies. Earlier this year, OpenAI achieved an annualized revenue of $3.4 billion, according to sources familiar with the matter.

Microsoft: Friend and Foe

OpenAI's unique structure involves non-profit status, where investors don't directly own equity but participate through investments in its for-profit subsidiary, sharing in the subsidiary's profits. Since 2019, Microsoft has invested $13 billion in OpenAI, receiving 49% of the company's profit share in return. 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 demonstrates the importance of this partnership for both parties, even amidst growing industry competition and the emergence of new collaborations. In July, Microsoft stepped down from its non-voting seat on OpenAI's board, which was partly seen as a response to regulatory scrutiny of the relationship. At the same time, Microsoft recently identified OpenAI as a competitor in the AI and search space in its regulatory filings.

It's worth noting that Microsoft is also aggressively expanding its AI footprint. Earlier this year, Microsoft hired 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 has partnered with Apple to infuse cutting-edge AI capabilities into the next generation of iPhones.

Summary

OpenAI's pursuit of $10 billion in funding, with a valuation exceeding $100 billion, alongside Microsoft's continued investment, highlights OpenAI's strong momentum in the AI field and Microsoft's commitment to OpenAI's technology. As competition intensifies in the AI space, OpenAI needs to continuously invest to maintain its leadership position, and Microsoft's ongoing support will be crucial for OpenAI's future growth.