Sam Altman, chief executive officer of OpenAI, spoke in May at a Microsoft event in Seattle. The tech giant is the start-up’s biggest investor.
Credit...Chona Kasinger/Bloomberg

OpenAI Completes Deal That Values Company at $157 Billion (Gift Article)

The A.I. start-up’s valuation has risen by more than $70 billion in nine months.

by · NY Times

OpenAI said on Wednesday that it had completed a $6.6 billion fund-raising deal that nearly doubles the high-profile company’s valuation from just nine months ago.

The new fund-raising round, led by the investment firm Thrive Capital, values OpenAI at $157 billion, according to two people with knowledge of the deal. Microsoft, the chipmaker Nvidia, the tech conglomerate SoftBank, the United Arab Emirates investment firm MGX and others are also putting money into OpenAI.

The company started the A.I. boom in 2022 with the release of its online chatbot, ChatGPT, sparking a race to invest in start-ups that develop similar technology. And its latest investment round indicates that the tech industry’s excitement over artificial intelligence remains strong, despite concerns about the effectiveness and the safety of the technology.

That should offer relief to other A.I. start-ups. While the tech industry’s biggest companies have been pouring billions of dollars into A.I. projects, investments in start-ups working on the technology cooled this year.

One reason for the slowdown was concern that small companies could not compete with the likes of Google, Amazon and Microsoft, and a number of start-ups were essentially swallowed by the tech giants.

But OpenAI’s profile has given it a major head start, and its revenues are rising quickly. The start-up expects about $3.7 billion in sales this year, according to financial documents reviewed by The New York Times. The company now has about 1,700 employees, after adding more than 1,000 in the last nine months.

OpenAI is losing billions of dollars, however, because of the unusually high cost of building and running A.I. technologies like ChatGPT. It expects to lose roughly $5 billion after paying for costs related to running its services and other expenses, according to an analysis of the documents by a financial professional.

Thrive Capital has invested about $1.3 billion in OpenAI, with $750 million coming from its own fund and $550 million from other investors through an instrument called a special purpose vehicle, according to a person familiar with the deal. Thrive also has the option to invest up to $1 billion more in OpenAI at the same $157 billion valuation through 2025, the person said. Other investors do not have that option.

“Every week, over 250 million people turn to ChatGPT regardless of the scale of the challenge — whether it’s communicating with someone who speaks another language or solving the toughest research problems,” Sarah Friar, OpenAI’s chief financial officer, said in a statement.

The new funding arrives as the start-up, which was valued at $80 billion nine months ago, fights through growing pains. Executives are still trying to repair the company’s reputation after its board of directors unexpectedly fired the chief executive, Sam Altman, in 2023. He was reinstated five days later, but OpenAI has lost several high-profile employees since then, including Ilya Sutskever, its chief scientist and a co-founder.

Last week, OpenAI’s chief technology officer, Mira Murati, as well as its chief research officer, Bob McGrew, and its vice president of research, Barret Zoph, said they were leaving the company.

The leadership tumult coincided with OpenAI’s efforts to close its fund-raising round. At least one company that explored investing, Apple, backed away and declined to invest, two people said.

(The Times sued OpenAI and Microsoft in December for copyright infringement of news content related to A.I. systems.)

Some of the unrest stems from OpenAI’s unusual structure. Mr. Altman, Elon Musk and others founded the A.I. research lab in 2015 as a nonprofit. But after Mr. Musk left the organization and stopped providing funding, Mr. Altman transformed OpenAI into what is called a capped-profit company, so that he could raise the billions of dollars needed to build A.I.

That meant OpenAI could provide a return for investors, but those profits were limited. The company was still governed by its original board of directors, which did not answer to investors.

OpenAI has also long been in talks to restructure itself as a for-profit company. But that is not expected to happen until sometime next year, according to two people with knowledge of the company’s plans.

Under the terms of the new investment round, OpenAI has two years to transform into a for-profit business or its funding will convert into debt, according to documents reviewed by The Times.

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News and Analysis

  • Gov. Gavin Newsom vetoed a California A.I. safety bill, blocking the most ambitious proposal in the nation aimed at curtailing the growth of the technology.
  • At an event in Silicon Valley, Meta exhibited a range of products, including new smart glasses, meant to blend the real world and virtual reality with a healthy dose of A.I.
  • Three top executives departed OpenAI as the company’s leaders, including Sam Altman, look to transform the start-up from a nonprofit to a for-profit model.

The Age of A.I.