OpenAI raises $6.6bn in battle to lead generative AI boom

OpenAI has completed a deal to raise $6.6 billion in new funding, giving the artificial intelligence company a $157 billion valuation.

The deal also bolsters its efforts to build the world’s leading generative AI technology.

The funding round was led by Thrive Capital, the venture capital firm headed up by Josh Kushner, which put in $1.3 billion. Microsoft, OpenAI’s largest backer, put in about $750 million, on top of the $13 billion it had already invested in the start-up, a source said.

Other investors included Khosla Ventures, Fidelity Management & Research and Nvidia, the chipmaker whose powerful processors are at the centre of the AI boom. Microsoft declined to comment.

The deal is one of the largest private investments and makes OpenAI one of the three biggest venture-backed start-ups, alongside Elon Musk’s SpaceX and TikTok owner ByteDance.

The size of the investment underscores the tech industry’s belief in the power of AI and its appetite for the extremely costly research powering its advancement.

Other investors included Tiger Global Management, which put in $350 million, and Altimeter Capital, which invested at least $250 million, sources said.

Global backers participating in the round included SoftBank Group. SoftBank’s investment was $500 million, according to one of the sources. Venture firm Coatue also participated.

The company said it would use the cash influx to drive forward AI research and increase its computing capacity. “AI is already personalising learning, accelerating healthcare breakthroughs and driving productivity,” OpenAI chief financial officer Sarah Friar said. “And this is just the start.”

The huge valuation for OpenAI has transfixed Silicon Valley. “People are shocked at 150 billion bucks,” said Altimeter chief executive Brad Gerstner, speaking on stage at the Madrona IA Summit in Seattle on Wednesday. But he also cited reports that the start-up expects to generate more than $10 billion in revenue next year. He added that a multiple of 10 times projected revenue is not exorbitant for a company about to go public, giving Google and Facebook as comparable examples.

The latest deal values OpenAI at more than $150 billion, before including the dollars raised in this round.

Mr Gerstner also said he hoped OpenAI would soon go public, and that it was the logical next step for the start-up, which he called “the most important AI company in the United States, next to Nvidia”.

Apple didn’t participate in the deal, although the company was previously in talks to invest, according to reports. The iPhone maker has a partnership with OpenAI to integrate ChatGPT on its devices and through its Siri voice assistant. As part of that accord, Apple was previously in discussions to get a board observer role on OpenAI’s board, although those plans were dropped, sources said.

Some of the funding round was invested through so-called special purpose vehicles, where backers can pool money from a wider array of investors to buy a portion of the shares. For example, in addition to contributing its own capital, Thrive put together an SPV to invest in the company, a source said. OpenAI declined to comment on the SPVs.

The financing deal follows a turbulent year for OpenAI. Last November, the company’s board fired and then quickly rehired chief executive Sam Altman. Since then, the company has restructured its board, hired hundreds of new employees and lost several key leaders, including co-founder Ilya Sutskever and chief technology officer Mira Murati.

At the same time, OpenAI is discussing moving from its non-profit structure that has frustrated investors to a for-profit model. The move would appease the company’s backers, but could pose legal hurdles. As part of a transition, OpenAI has discussed awarding Mr Altman equity in the company – a stake that could be worth more than $10 billion, though OpenAI’s board said it hasn’t discussed specific numbers.

OpenAI kicked off a Silicon Valley obsession with the potential of AI when it debuted its chatbot, ChatGPT, in 2022. The tool can generate human-sounding responses to questions, and has amassed 250 million weekly active users, the company said. Its paid service, ChatGPT Plus, has 11 million subscribers, a source said. And its business-focused service has more than one million users, previous reports said.

A slate of new companies have sprung up to compete with OpenAI, including several that have been founded by former OpenAI employees – such as Anthropic and Safe Superintelligence. OpenAI is also facing intense competition from larger tech companies with vast resources, including Google and Amazon, which are also developing their own AI models.

In this funding round, OpenAI discouraged investors from backing rival companies, such as Anthropic or Mr Musk’s AI start-up xAI, according to a source. Earlier reports said leading venture capital firm Sequoia Capital, which backed Safe Superintelligence, would not participate in the newest fundraising.