OpenAI Set for $6.5 Billion Funding Round with Potential Corporate Restructuring

OpenAI, the maker of ChatGPT and the world’s most valuable AI startup, is poised to raise $6.5 billion in a new round of financing. However, the success of this funding round and the company’s soaring $150 billion valuation will depend on significant corporate restructuring, including the removal of a profit cap that limits returns for investors, according to sources familiar with the matter.

Convertible Notes to Drive Financing

The financing, which is expected to be in the form of convertible notes, is generating strong demand from investors. According to sources, the round could be finalized within two weeks due to the rapid growth in OpenAI’s revenue streams. Existing investors like Thrive Capital, Khosla Ventures, and Microsoft are expected to participate, while new potential backers include Nvidia and Apple. Sequoia Capital is also in talks to return as an investor.

OpenAI’s new valuation is conditional upon its ability to overhaul its corporate structure and remove the existing profit cap for investors. Should the restructuring fail, OpenAI may have to renegotiate its valuation with the investors at which their shares will be converted, potentially lowering the company’s overall value.

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Non-Profit to For-Profit Shift?

The removal of the profit cap requires approval from OpenAI’s non-profit board, which includes prominent figures like CEO Sam Altman and entrepreneur Bret Taylor, along with seven other members. The company is also reportedly exploring legal discussions about transitioning from its current non-profit status to becoming a for-profit benefit corporation. This model is currently employed by competitors such as Anthropic and xAI.

These possible structural changes would mark a significant departure from OpenAI’s original mission as a non-profit entity focused on creating AI for the betterment of humanity. Since its inception in 2015, OpenAI has been controlled by a non-profit parent organization and has aimed to balance commercial success with safety and sustainability, rather than pursuing pure profit-maximization.

Investor Implications of Profit Cap Removal

If OpenAI successfully eliminates its profit cap, early investors could stand to gain even more from their initial contributions. Currently, returns for investors are capped at 100 times the original investment for those who participated in OpenAI’s first funding round. This profit cap was part of a model OpenAI introduced to raise over $10 billion in recent years, largely driven by investments from Microsoft.

OpenAI’s move to possibly remove the cap raises questions about its governance and whether it signals a departure from its initial mission. In a 2019 blog post, OpenAI explained that the cap was designed to “incentivize them to research, develop, and deploy AGI in a way that balances commerciality with safety and sustainability, rather than focusing on pure profit-maximization.”

Commercial Growth Amid Shifts in Focus

While OpenAI’s origins lie in research and the goal of developing artificial general intelligence (AGI) for the betterment of society, it has since ramped up commercialization efforts. OpenAI now offers subscription-based services, including ChatGPT, to consumers and enterprises, with over 200 million users globally. The significant commercial success of ChatGPT and other AI models has provided OpenAI with the resources to pursue further AGI research, but it also means the company is increasingly walking a tightrope between commercial profitability and ethical responsibility.

Valuation Contingent on Restructuring

OpenAI’s $150 billion valuation is contingent on successful corporate restructuring, including removing the cap on investor returns. If the restructuring is not approved, OpenAI would have to renegotiate the terms of the funding round and potentially lower its valuation.

In February, OpenAI was last valued at $80 billion in a tender offer deal led by Thrive Capital. The company has since continued to raise capital and expand its services, making it one of the most valuable and influential AI companies globally. The upcoming round of financing is expected to provide the resources needed to continue its pursuit of AGI, despite the high costs associated with this research.

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