OpenAI, the creator of ChatGPT, has just completed an unprecedented venture capital funding round. The company has declared that it secured $6.6 billion in investments, resulting in a post-money valuation of $157 billion. Thrive Capital, a returning investor, spearheaded the round, which has elevated OpenAI’s total funding to $17.9 billion, according to Crunchbase data.
Thrive Capital contributed approximately $1.3 billion, as reported by The New York Times, and holds an exclusive right to invest an additional $1 billion at the same valuation until 2025. Other participants in the funding round include Microsoft, Nvidia, SoftBank, Khosla Ventures, Altimeter Capital, Fidelity, and MGX.
OpenAI expressed in a blog post that the fresh capital will bolster their pioneering AI research, enhance their computing capabilities, and support the development of tools to tackle complex challenges. The company acknowledged the confidence their investors have placed in them and expressed eagerness to collaborate with partners, developers, and the wider community to cultivate an AI-driven ecosystem that benefits all.
However, there are reports of unusual conditions linked to the investment. The Financial Times revealed that OpenAI requested investors to refrain from funding competing startups like Anthropic and xAI. Already the most well-funded AI startup globally, OpenAI’s latest financial boost places it in a league of its own.
Elon Musk’s AI venture, xAI, also raised significant funds earlier this year, over $6 billion, but its valuation of $24 billion post-money pales in comparison to OpenAI’s. OpenAI’s chief competitor, Anthropic, has amassed just over half of OpenAI’s total funding since its inception, while other prominent AI ventures like Cohere and Mistral have gathered around $1 billion each.
The rationale behind OpenAI’s record-breaking fundraising is to sustain its expansive operations which ironically was more cash than the government of Zimbabwe spent in 2021. The company is known for its substantial spending on AI system training, product development, and recruitment of top data science talent to maintain its competitive edge.
OpenAI has reportedly invested around $7 billion in model training and $1.5 billion in staffing. Sam Altman, OpenAI’s CEO, has mentioned that training for one of their older leading models, GPT-4, exceeded $100 million in costs. At one point, the operational expenses for ChatGPT were estimated at $700,000 daily.
Dominating the generative AI market, OpenAI’s ChatGPT boasts over 250 million users, with approximately 10 million paying subscribers. The company’s annual revenue is said to have surpassed $3.4 billion, with ChatGPT potentially generating $2.7 billion this year alone, as per internal documents from OpenAI cited by The New York Times.
Microsoft, a key partner and investor in OpenAI, has developed a suite of productivity tools based on OpenAI’s models. Additionally, Apple is integrating ChatGPT into its lineup of AI technologies. OpenAI has ambitious revenue projections, aiming to match Nestlé’s current annual sales of $100 billion by 2029. Nevertheless, it faces stiff competition from various fronts.
Competitors like Runway and Luma Labs have already launched high-quality video generation models, ahead of OpenAI’s expected release of its video model, Sora, later this year. Anthropic is expanding its AI product range to compete with ChatGPT, while xAI, Google, Amazon, and others are investing in infrastructure for advanced model training. Meta and emerging companies like Black Forest Labs are also releasing open models to democratize text- and image-generating AI technologies.
Due to competitive pressures, OpenAI might significantly increase the cost of its premium ChatGPT plan, potentially raising it from $20 to $44 per month by 2029. The company is also considering restructuring to attract more investments.
Currently, OpenAI’s for-profit arm is regulated by a nonprofit that limits investor returns. However, there are indications that OpenAI will transition from nonprofit governance in the coming months. Reuters reported that the completion of the $6.6 billion funding round was contingent on this change, which might also involve equity for Altman. Investors in the latest round could retrieve their investments if OpenAI does not convert to a for-profit entity within two years, as per Bloomberg.
This change could provide OpenAI with more flexibility to pursue capital-heavy, long-term projects like AI chips and datacenters, reducing its dependency on Nvidia, which supplies much of the hardware for OpenAI’s model training and operations. It would also replenish OpenAI’s funds for licensing deals with data providers such as Reddit and Condé Nast, potentially giving the company a competitive advantage and protection against IP litigation.
However, OpenAI’s ability to execute its plans remains to be seen, as the company has recently seen a wave of high-profile executive departures due to disagreements over its direction. CTO Mira Murati, chief research officer Bob McGrew, and research VP Barret Zoph have resigned, along with other notable figures such as Andrej Karpathy, Ilya Sutskever, Jan Leike, John Schulman, and Greg Brockman, leaving only three of the original 13 founders at OpenAI.
