OpenAI has announced that it secured $40 billion in fresh funding. This massive investment values the company at an eye-popping $300 billion.
According to CNBC, this financing round is the largest private funding round ever in the tech industry.
Japanese investment holding company SoftBank is leading a massive funding round with a $30 billion investment, backed by several prominent supporters including Microsoft (a key existing investor), as well as Coatue, Altimeter, and Thrive.
“OpenAI has very ambitious plans on many fronts and needs a lot of capital to achieve these goals,” D.A. Davidson & Co analyst Gil Luria said. “The list of investors wanting to support that scope has shrunk and may be largely limited to SoftBank, which itself may not have the necessary capital.”
OpenAI said the fundraising enables them to “push the frontiers of AI research even further, scale our compute infrastructure, and deliver increasingly powerful tools for the 500 million people who use ChatGPT every week.”
Stargate project and funding rollout
Approximately $18 billion of the funding has been allocated for OpenAI’s commitment to Stargate, a joint project between SoftBank, OpenAI, and Oracle that was introduced in January.
The funding will be distributed in phases, starting with an initial $10 billion, followed by the remaining $30 billion before the end of 2025. However, one important condition is attached to the deal. SoftBank revealed in an updated disclosure on Monday that its total investment could decrease to as little as $20 billion if OpenAI does not convert to a for-profit structure by December 31st.
Pressure mounts for corporate restructuring
The stipulation intensifies the pressure on OpenAI to finalize its transition to a for-profit entity, a step that necessitates approval from both Microsoft and the California attorney general. This plan has already encountered legal challenges from Elon Musk, who helped establish OpenAI as a nonprofit research laboratory in 2015.
OpenAI’s current setup is unusual in the business world. It has two main parts:
- The original nonprofit organization (created in 2015, which controls the company
- A “capped-profit” business section (added in 2019) that can make money but with limits on profits
If the restructuring plan goes through, the nonprofit would break off to become a separate entity. Meanwhile, the investors who’ve put money into OpenAI don’t actually own pieces of the company yet—they have special IOUs (called “convertible notes”) that would turn into actual ownership shares after the company fully becomes a for-profit business.
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