OpenAI valuation and corporate structure in focus
2min read OpenAI is in the process of raising $6.5 billion through a convertible note funding round, which could bring its valuation to an impressive $150 billion. However, this valuation is contingent on the company's ability to remove the current profit cap in its corporate structure, a move that would likely require approval from OpenAI's non-profit board. The removal of the profit cap would provide early investors the opportunity for significantly higher returns, particularly as OpenAI moves away from its non-profit roots to a more commercially-driven entity. The funding round is reportedly led by Thrive Capital, with participation from major tech players like Microsoft, Nvidia, and Apple.
The use of convertible notes in this round means that investors will be providing capital now, but their investment will convert into equity later, with the valuation at conversion depending on whether OpenAI successfully restructures its corporate governance. If the restructuring effort fails, the valuation at which the notes convert could be lower, reflecting a potential hit to investor returns. This structural shift represents a critical moment for OpenAI, as it transitions from a research-driven entity to a commercially-focused powerhouse in artificial intelligence.
The restructuring is significant because OpenAI's current profit cap, designed to limit investor returns, has been part of its ethos since its non-profit inception in 2015. The cap was originally set to ensure that the company prioritized the development of safe and ethical AI over pure profit-maximization. However, with the rising costs of pursuing artificial general intelligence (AGI) and the demands of scaling its commercial products like ChatGPT, the company appears to be shifting its focus toward attracting larger investments to meet these needs.
The potential removal of the profit cap raises questions about OpenAI's governance and its long-term mission. Critics argue that the shift could prioritize commercial success over safety and sustainability in AI development. Nonetheless, OpenAI remains committed to its non-profit oversight, with a spokesperson reaffirming that the non-profit board will continue to play a central role in the company’s mission, even as it considers transitioning to a for-profit benefit corporation, similar to rivals like Anthropic and xAI.
Investors are particularly interested in this funding round because OpenAI has seen explosive growth, fueled by the success of its ChatGPT product and other AI offerings. The company now boasts over 200 million users, and its revenue has skyrocketed to over $2 billion annually. This rapid growth has captured the attention of major tech firms and venture capitalists, who see significant long-term potential in the company’s AI capabilities. The $150 billion valuation would make OpenAI one of the most valuable startups globally.
On the stock market side, some existing shareholders are allowed to sell portions of their stakes through a tender offer, similar to past deals. Additionally, OpenAI is seeking a $5 billion revolving credit facility from banks, further solidifying its financial foundation. This move also builds relationships with banks, which could come in handy if OpenAI pursues an initial public offering (IPO) down the road. For now, the company’s focus remains on securing the capital necessary to meet its computing power needs and to fund its ambitious AGI research goals.
