OpenAI Secures $6.6 Billion in Landmark Funding Round, Valuation Soars to $157 Billion

Nvidia, Microsoft, SoftBank, and Cathie Wood's Ark Invest Are Betting Big on This AI Startup | The Motley Fool

OpenAI just closed one of the largest private funding rounds in American history. OpenAI was founded in 2015 by a team of researchers and entrepreneurs which included Sam Altman, Peter Thiel, and Tesla Chief Executive Offficer Elon Musk. It was established as a not-for-profit research organization with a mission to develop artificial intelligence (AI) technology that benefits all of humanity. OpenAI planned to raise $1 billion through donations to achieve its research and development goals. After only taking in $130.4 million in donations during its first few years, the organization decided to create a new subsidiary in 2019 which was capable of generating capped profits to attract investors instead. Since then, OpenAI has developed some of the world's most advanced AI models, which are at the foundation of its ChatGPT chat bot application. Now, OpenAI wants to extend its leadership in the AI industry by fully committing to a for-profit structure, and it just accepted a whopping $6.6 billion in new investment from the likes of Nvidia (NVDA 1.69%), Microsoft (MSFT -0.11%), SoftBank (SFTB.Y 0.84%), Cathie Wood's Ark Invest, and more. This isn't the first mega-capital raise OpenAI has closed. Shortly after opening its capped-profit subsidiary in 2019, it entered a strategic partnership with Microsoft that included a $1 billion cash injection. The two companies agreed to collaborate on AI development, with a specific goal to help expand the AI capabilities of Microsoft's Azure cloud computing platform. Then, at the beginning of 2023, Microsoft said it would invest a further $10 billion, spread across several payments over time. Since the deal terms were never fully disclosed -- and given OpenAI's current structure -- it's unclear whether Microsoft received an equity stake for its money. But it was widely reported that Microsoft would be entitled to 49% of OpenAI's future profits, if and when it's able to generate any. The $6.6 billion capital raise that OpenAI just completed, however, could involve equity. According to Reuters, the participating investors will receive convertible notes, which are a debt instrument, and they will convert into equity after OpenAI officially establishes a "public benefit corporation." It's a corporate structure that will let OpenAI make money while maintaining its social mission. The investors in this latest round (according to The Wall Street Journal and Business Insider) include: The establishment of the for-profit entity is subject to approval from the board that oversees OpenAI's nonprofit arm. Typically, due to the nature of convertible notes, the investors would be entitled to their money back if the transition fails to proceed. Plus, the nonprofit arm owns the intellectual property (IP), which includes all of the AI models and infrastructure that led to ChatGPT, and the formation of a for-profit entity can't leave the nonprofit side worse off (legally speaking). In other words, even if investors own equity in the new for-profit corporation, it's unclear whether they will own a stake in any of the actual IP or anything else that makes OpenAI so valuable. On Oct. 3, CNBC reported that OpenAI was granted a $4 billion line of credit from a collection of banks including JPMorgan Chase, Goldman Sachs, Citigroup, and more. That will give the start-up a buffer if it runs into any issues with its equity transaction. ChatGPT has about 350 million monthly active users. Most of them use it for free, but a small fraction pay a subscription of $20 per month for early access to new features, higher file limits, and more message tokens. OpenAI also licenses its AI models (like GPT-4) to developers, who can use them to create their own AI software applications in exchange for a fee. OpenAI is reportedly poised to generate $3.7 billion in revenue in 2024. Considering its recent capital raise values the company at $157 billion, that places it at a price-to-sales (P/S) ratio of 42.4 -- in other words, it's even more expensive than Nvidia. However, OpenAI expects its revenue to grow by a whopping 213% to $11.6 billion in 2025, and according to its long-term forecast, its revenue could top $100 billion per year by 2029. If it hits those targets, its current valuation won't look so bad in hindsight. However, OpenAI will require a significant amount of capital to get there. Reports suggest it will have a loss of $5 billion this year, which means the $10 billion in combined funding it's about to receive from investors and banks will barely last two years. Not yet. OpenAI is a private company, so it can choose which investors it wants to work with. Accepting large sums of money from a small number of backers is much easier than offering slivers of the company to millions of smaller investors. Plus, having partners like Nvidia and Microsoft on board as equity holders creates important synergies, as I highlighted earlier. Brad Gerstner from Altimeter Capital says the start-up's next move should be an initial public offering (IPO), which would let regular investors participate in its future success. For now, one way investors could gain exposure to OpenAI is by purchasing shares in Microsoft, Nvidia, or even SoftBank. This strategy isn't perfect because those companies are so big that their investment in OpenAI won't move the needle much even if the start-up is wildly successful from here. As a result, investors who want to get involved directly might have no choice but to wait.

Cathie Wood's Ark Invest Tops OpenAI Bet Amid $4 Bln Credit Facility Launch

OpenAI appears attractive with new funding from NVIDIA and Microsoft Cathie Wood's ARK Invest was one of the investors in OpenAI's recent funding round. The asset manager contributed about $250 million to the $6.6 billion capital raise As a result, the Sam Altman-led Artificial Intelligence (AI) firm is now the Ark Venture Fund's third-largest holding. According to the ARK Venture Fund website, ts investment in OpenAI accounts for about 5% of the its total assets. This new development suggests that the investment asset management firm is intentional about increasing its stake in the AI firm. It is worth noting that ARK's stake was at 4% in April, when it made its first investment. Considering how Cathie Wood had earlier sidestepped OpenAI to name Elon Musk's Tesla the biggest AI project, the new development is shocking. Wood made this inference while talking with Valerio Baselli, a senior international editor with Morningstar, about robo-taxis or autonomous taxi platforms. She claimed that the sector will take the lion's share of the AI market, adding that it is a "winner takes most market." OpenAI may have outperformed ARK Invest CEO's expectation with its new valuation of $157 billion. The AI firm reached this milestone in barely nine months as it reported a valuation of $86 billion at the beginning of this year. The $6.6 billion funding round has cemented its position as one of the most valuable private companies in the world. Apart from ARK Invest participation, the recent $6.6 billion funding round had investors like Microsoft, AI chip-maker NVIDIA and Thrive Capital, which led the fundraiser with $1 billion. Noteworthy, the funding came in the form of convertible senior notes. Only a few days after the $6.6 billion funding round, OpenAI announced that it secured a new $4 billion revolving credit line. The credit facility was from some of the top financial leaders including JPMorgan Chase, Citi, Goldman Sachs, Morgan Stanley, Santander, Wells Fargo, SMBC, UBS and HSBC. OpenAI's finance chief Sarah Friar mentioned that the credit facility further strengthens the ChatGPT maker's balance sheet. This is in addition to providing flexibility to seize future growth opportunities. The firm strongly believes that this credit facility will boost its liquidity to $10 billion. With this financial status, it can conveniently purchase costly computing capacity, including chips from Nvidia. Ultimately, this will enhance its position in its race with tech giants such as Alphabet-owned Google. Beyond Google, OpenAI also has xAI to compete with. With Elon Musk always criticizing OpenAI's business model, these funding might help it boost its push toward becoming a for-profit entity. Betting on both firms is also considered a smart strategy from the Cathie Wood-led Ark Invest.

Cathie Wood-Led Ark Venture Fund Agrees To Invest At Least $250M In OpenAI's Historic Funding Round, ChatGPT-Parent's Now Valued At $157B: Report - Microsoft (NASDAQ:MSFT)

Cathie Wood's Ark Venture Fund has reportedly invested in OpenAI's latest funding round, making it one of the largest in startup history. What Happened: On Wednesday, Ark Venture Fund committed to investing a minimum of $250 million in OpenAI's latest funding round, reported Business Insider, citing three people familiar with the round. This marks Ark's second investment in the AI firm which has made a new wave of generative AI technology since launching ChatGPT. Previously in April also, Ark announced that it had acquired a stake in OpenAI, although it did not disclose the amount of the investment or the valuation it assigned to the company. The Ark Venture Fund, which launched in 2022, has a history of investing in high-profile startups, including OpenAI's competitors Anthropic, Elon Musk's xAI and SpaceX, FigureAI, and Databricks. See Also: Apple's Satellite Messaging Feature Emerges As Lifeline After Hurricane Helene Leaves Thousands Without Cell Phone Service: Here's How You Can Use It OpenAI's latest funding round was reportedly led by Thrive Capital and has now reached a whopping $6.6 billion. Other potential participants rumored to be involved include tech giants Microsoft Corporation MSFT, which has already invested about $13 billion in the AI company over the last five years, Nvidia Corporation, and Altimeter. Apple withdrew from the talks early, but separate reports indicated that Masayoshi Son-led SoftBank Group Corporation was considering stepping in. Ark Invest did not immediately respond to Benzinga's request for comment. Subscribe to the Benzinga Tech Trends newsletter to get all the latest tech developments delivered to your inbox. Why It Matters: OpenAI's valuation has skyrocketed to $157 billion in its latest funding round. Despite notable exits from OpenAI and possible corporate restructuring, investors are still confident in the company's capacity to advance AI technology. Meanwhile, Amazon.com Inc. has launched a new AI chatbot named "Cedric," designed to be safer than ChatGPT created by OpenAI for internal use. Amazon has reportedly been wary of using third-party AI tools like ChatGPT due to security concerns. Earlier this year, the e-commerce giant implemented formal guidelines prohibiting the use of external AI tools for business purposes. Check out more of Benzinga's Consumer Tech coverage by following this link. Read Next: Elon Musk Responds After Y Combinator's Paul Graham Says Twitter Name Change 'Was A Waste Of Time:' 'You Know Nothing' Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors. Market News and Data brought to you by Benzinga APIs