OpenAI Eyes $100B Valuation in New Funding Round Amid AI Surge

OpenAI is reportedly in discussions with venture capital firms to secure a significant influx of capital, potentially pushing its valuation over $100 billion. According to a report by The Wall Street Journal, Thrive Capital is expected to invest $1 billion in this funding round, with Microsoft likely to contribute as well. This would mark the largest capital injection for OpenAI since Microsoft’s $10 billion investment in January 2023, which solidified its 49% stake in the company.

Internal Valuations and Stockholder Deals

Documents reviewed by The Wall Street Journal reveal that OpenAI stockholders have been negotiating to sell shares at a valuation of approximately $103 billion. Any new investments are anticipated to match or exceed this valuation, excluding additional funds from the new raise. Earlier this year, OpenAI allowed employees to sell their stakes, which pegged the company’s private valuation at around $86 billion.

Impressive Growth Despite Financial Challenges

OpenAI’s valuation has seen a rapid increase, climbing from $29 billion in 2022 to a reported $80 billion earlier this year. This growth has been driven by the widespread adoption of its ChatGPT chatbot, as well as its expansion into AI-generated content and business solutions. However, despite this success, the company faces financial challenges. Reports indicate that OpenAI could lose up to $5 billion in 2024, putting it at risk of running out of cash within the next 12 months.

Unique Investment Structure of OpenAI

It's important to note that OpenAI operates under a unique investment structure. As the startup is technically a nonprofit organization, investors do not own private equity in the company itself. Instead, their investments are directed into a for-profit subsidiary known as OpenAI LP. Investors in this subsidiary are entitled to a share of the profits, but only once the entity reaches a pre-determined profit cap. This structure reflects OpenAI's commitment to balancing its mission-driven goals with the need to secure funding for its ambitious projects.

Criticism and Future Prospects

Tech commentators have voiced concerns about OpenAI’s business model. On Aug. 2, tech reporter Ed Zitron criticized OpenAI’s path to profitability as “untenable,” suggesting that the company would need to raise more funding than any startup in history to survive beyond 2026. The company has already burned through $8.5 billion on AI training and staffing, further emphasizing the need for fresh capital.

The Competitive AI Landscape

The potential new funding round for OpenAI comes as the AI industry becomes increasingly competitive. Rivals like Google and Amazon have invested billions in their AI ventures, including Google’s Gemini and Anthropic’s Claude. Meta, another competitor, is advancing with its own AI product, Meta AI, powered by the open-source large language model, Llama 3.1.