OpenAI Closes $300M Share Sale at $27B-29B Valuation

Updated to note that the Microsoft investment closed in January. The money from VCs reported here, part of a bid, is separate from that.

Open AIthe startup behind the widely used conversational AI model ChatGPT, has picked up new backers, businessroundups.org has learned.

VC firms including Tiger Global, Sequoia Capital, Andreessen Horowitz, Thrive and K2 Global are picking up new shares, according to documents businessroundups.org has reviewed. A source tells us that Founders Fund is also investing. All told, the VCs have brought in just over $300 million at a valuation of $27 billion – $29 billion. This is separate from a major investment from Microsoft announced earlier this year, a person familiar with the development told businessroundups.org, which concluded in January. The size of Microsoft’s investment is estimated to be around $10 billion, a figure we’ve confirmed with our source.

If all this adds up, this is the close of the Wall Street Journal’s bid reported was in progress in January. We confirmed that’s when the discussions started, amid a viral wave of interest in OpenAI and its activities.

We’ve reached out to the investors listed here, as well as OpenAI, for comment and will update this story as we learn more. OpenAI declined to comment on the takeover bid, which is separate from the Microsoft investment that closed in January.

While Microsoft’s investment has a strong strategic angle — the tech giant is working to integrate OpenAI’s technology into some areas of its business — the VCs come in as backers.

As far as we understand, the term sheets have been signed by investors and money has been transferred; what is yet to come is OpenAI co-signing. The plan was to make this investment public next week.

Overall, outside investors now own more than 30% of OpenAI, the source said.

According to PitchBook data, it appears that Peter Thiel was already a financier, but it appears that this will be Founders Fund’s first investment; K2 Global, a company with only one partner, Ozi Amanate, and Thrive are also the startup’s first backers. From PitchBook data, it appears that Sequoia, A16Z, and Tiger Global were previous investors in the company.

A number of companies, including Tiger and Sequoia, have taken some hits as a result of the financial crisis that the technology sector has been through over the past year; in general, a number of VCs have slowed their investment pace massively, sitting on so-called “dry powder” waiting for a better climate and perhaps better opportunities.

So at a time when investors are hunting for interesting AI startups to supportOpenAI is probably seen as the kind of opportunity that looks good right now.

“They’re probably trying to use this [funding] to say hi, look, we found a golden apple,” said a source of the decision to support OpenAI here and now. “Venture is a very strange place where anything can happen. You can go from big to broke to big again at any time.

OpenAI has an army of technical teams working in different areas, but the area that has been garnering a lot of attention lately is GPT, short for Generative Pre-trained Transformer, OpenAI’s family of large language models used by third parties by way of APIs .

There’s also ChatGPT, the generative AI service that OpenAI released in late November 2022 based on GPT, which allows anyone to type in a natural question and get a compelling, detailed answer. ChatGPT has been an arguable hit, with over 1 billion visitors to its website in February, it says SimilarWeb — and that excludes those using that technology through third parties.

Generative AI is all the rage right now, but OpenAI also has its controversies, with many focusing on that buzzy, consumer-focused ChatGPT product. People have wondered if it’s lying, if it’s a “virus”, how it handles privacy, if it can be manipulated to be toxic or libel; and in the wake of so much more rushed AI development, even the nature of how “open” OpenAI’s GPT branding will be over the longer term has come into question.

Frankly speaking, OpenAI has recognized the work that still needs to be done, and meanwhile it has continued to develop and iterate on services. In February, the startup introduced a paid version of ChatGPT called ChatGPT Plus with a faster user experience. It was upgraded in March with multimodal LLM GPT-4.

Key to the proposal, OpenAI’s appreciation, and likely investor interest is that in addition to the technology, there’s a rapidly developing ecosystem around that technology.

In addition to the hundreds of millions of people who have played with ChatGPT, hundreds of companies large and small have started implementing GPT and ChatGPT in their products and services. That has also been a boost for other big tech companies to accelerate the rollout of their own generative AI efforts. Google launched Bard and also introduced Meta Llama to tackle GPT with its own LLM.

However, OpenAI has an undeniable gravitational pull amidst the competition, not least because of its singular focus on the AI ​​space since its inception in 2015. That has remained the same as it has undergone a number of significant changes, including shifting from its original non-profit model. We do not Real know if AI will accelerate the seismic shift that many say it will, but as one person put it, OpenAI may be the closest thing to a winner in the space right now.

“We’ve been working on it for so long, but we’re gradually becoming more confident that it’s actually going to work,” co-founder and CEO Sam Altman said at an AI conference earlier this month. “We have been [building] the company for seven years. These things take a very long time. I would broadly say why it worked while others didn’t: it’s just because we’ve been sweating every detail for a long time. And most people are not willing to do that.”

In addition to ChatGPT, OpenAI has its AI-based image generation tool called Dall-E, which received a major update in July last year. It also has Whisper AI voice recognition model.

Microsoft’s efforts include integrating OpenAI’s APIs with its Azure infrastructure to support the compute requirements of the models. In March, it also announced a GPT-4 integration to boost Bing, part of Microsoft’s longstanding effort to reduce the dominance of Google’s search services.