Investors are taking a bold gamble by participating in OpenAI‘s latest funding round, which is expected to value the company at $150 billion. The San Francisco-based start-up has already received over $1 billion from venture capital firm Thrive Capital, and it aims to raise an additional $5 billion or more. Notably, tech giants Apple, Nvidia, and Microsoft are in talks to join the funding round. However, leading investors such as Andreessen Horowitz and Sequoia Capital have decided not to participate.
The scale and structure of this funding round are highly unusual. Typically, venture investors like Thrive and Tiger Global invest smaller amounts in less established start-ups with hopes of significant returns. To achieve a similar return with OpenAI, the company would need to grow substantially and be valued at least $1.5 trillion.
Despite its massive fundraising efforts, OpenAI has had no trouble attracting demand from investors. In addition to providing its own investment, Thrive is launching a special purpose vehicle for other institutions interested in investing in OpenAI.
While some believe that OpenAI has the potential to become a trillion-dollar company due to the advent of generative AI technology, others question whether such an investment makes financial sense. Overcoming competition from tech giants like Google and Meta will be crucial for OpenAI’s success.
OpenAI currently generates around $3.6 billion in annualized revenues but continues to burn through over $5 billion each year as it invests heavily in new models and products.
To secure desired returns on investment and stay ahead of competitors like Anthropic and xAI (Elon Musk’s AI start-up), OpenAI will require billions more in capital.
Strategic partnerships with companies like Microsoft (already invested) or Apple could provide distribution advantages for OpenAI against rivals Google and facebook.
However, concerns remain about being overly exposed to a single company’s fortunes among some investors who have chosen not to fully commit their investments into OpenAI.
OpenAI has experienced internal challenges such as boardroom crises last year when CEO Sam Altman was ousted temporarily before being reinstated after five days. Plans for corporate restructuring are being discussed but are not tied directly to the current fundraising efforts.
Despite these challenges, backers of OpenAI believe that growing pains are typical for successful start-ups like Google or Apple during their early stages.
