Exclusive-OpenAI’s staggering $150 billion valuation hinges on overturned corporate structure, sources say

By Krystal Hu and Kenrick Cai

(Reuters) – OpenAI’s new round of funding is expected to come in the form of convertible notes, according to sources with direct knowledge of the matter, who said its $150 billion valuation will depend on whether the ChatGPT maker can change the corporate structure and remove the profit cap for investors.

Details of the terms of the $6.5 billion funding, which were not previously reported, show how far OpenAI, the world’s most valuable AI startup, has come from a research-based nonprofit and the structural changes it is willing to make. make them is doing to attract more and more investment to fund its expensive pursuit of artificial general intelligence (AGI), or AI that surpasses human intelligence.

The huge funding round saw strong demand from investors and could be completed in the next two weeks given OpenAI’s rapid revenue growth, the sources added.

Existing investors such as Thrive Capital, Khosla Ventures, as well as Microsoft are expected to participate. New investors, including Nvidia and Apple, plan to invest. Sequoia Capital is also in talks to return as a returning investor.

If the restructuring is not successful, OpenAI would have to renegotiate its valuation with the investors into which their shares will be converted, probably to a lower number, the sources told Reuters, who requested anonymity to discuss private matters.

Asked about the funding and the potential change, OpenAI said in a statement that it remains focused on building artificial intelligence that benefits everyone while working with its non-profit board.

“The nonprofit is core to our mission and will continue to be,” a company spokesperson said.

Removing the profit cap would require approval from OpenAI’s nonprofit board, made up of chief executive Sam Altman, entrepreneur Bret Taylor and seven other members.

The company has also held talks with lawyers about turning its non-profit structure into a for-profit benefit corporation, similar to what its rivals such as Anthropic and xAI use, the sources added, confirming media reports.

It is not clear whether such fundamental corporate structural changes could take place. Removing the profit cap, which put a cap on potential returns for investors in OpenAI’s for-profit arm, would give early investors an even bigger win.

It could also raise questions about OpenAI’s governance and deviation from its non-profit mission. OpenAI said the cap was put in place to “encourage research, development, and implementation of AGI in a way that balances commerciality with safety and sustainability, rather than focusing on pure profit maximization.”

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The San Francisco AI Lab, founded in 2015 as a nonprofit research project with the goal of building AI for the benefit of humanity, is currently controlled by a nonprofit parent organization.

It has accelerated its commercialization efforts by selling subscription-based services such as ChatGPT to consumers and businesses, which now boasts more than 200 million users.

Existing investors are bound to a capped return on investment, with any additional profits going to the nonprofit.

The return was capped at 100 times the investment for investors in OpenAI’s first funding round. “We expect this multiple to be lower for future rounds,” the company said in a 2019 blog post detailing the structure.

OpenAI has used this model to raise over $10 billion in recent years, most of it from Microsoft. It was last valued at $80 billion in February in a tender offer in which the company sold existing shares led by Thrive Capital.

(Reporting by Krystal Hu in New York and Kenrick Cai in San Francisco; Editing by Kenneth Li and Diane Craft and Miral Fahmy)