Written by Crystal Ho and Kenrick Kay
OpenAI’s new funding round is expected to come in the form of convertible notes, according to people familiar with the matter, who said its $150 billion valuation will depend on whether the ChatGPT maker is able to flip its corporate structure and remove the profit cap for investors.
The details of the $6.5 billion financing, which have not been previously reported, show how far OpenAI, the world’s most valuable AI company, has come from a nonprofit research foundation, and the structural changes it wants to make to attract more investment to fund its expensive quest for artificial general intelligence (AGI), or AI that surpasses human intelligence.
The massive funding round saw strong demand from investors and could close in the next two weeks, given OpenAI’s rapid revenue growth, the sources said.
Existing investors including Thrive Capital and Khosla Ventures are expected to participate, as well as Microsoft (NASDAQ: ). New investors including Nvidia (NASDAQ: ) and Apple (NASDAQ: ) are also planning to invest. Sequoia Capital is in talks to return as a returning investor.
If the restructuring fails, OpenAI will need to renegotiate its valuation with investors whose shares will be transferred to them, likely for a lower amount, two sources told Reuters, asking not to be identified discussing private matters.
OpenAI declined to comment.
Removing the profit cap would require approval from OpenAI’s nonprofit board of directors, which consists of CEO Sam Altman, entrepreneur Bret Taylor, and seven other members.
The company has also been in discussions with lawyers about converting its nonprofit structure into a for-profit, for-profit company, similar to what rivals Anthropic and xAI use, the sources added, confirming media reports.
But it’s unclear whether such fundamental structural changes to the company are possible. Removing the earnings cap, which caps the potential returns for investors in OpenAI’s for-profit subsidiary, would give early investors a bigger win.
It could also raise questions about OpenAI’s governance and its deviation from its nonprofit mission. OpenAI said the cap was set “to incentivize them to research, develop, and deploy general AI in a way that balances commerce, safety, and sustainability, rather than focusing on pure profit maximization.”
The San Francisco-based AI Lab was founded in 2015 as a nonprofit research project with the goal of building artificial intelligence for the benefit of humanity, but is currently controlled by a nonprofit organization.
It has accelerated its commercial efforts by selling subscription-based services like ChatGPT to consumers and businesses, which now have more than 200 million users.
Existing investors must commit to a maximum return on investment, with any additional returns going to the nonprofit.
Returns were set at 100x the investment for investors in OpenAI’s first funding round. “We expect this multiple to be lower in future rounds,” the company said in a 2019 blog post detailing the structure.
OpenAI has used this model to raise more than $10 billion in recent years, the majority of it from Microsoft. It was last valued at $80 billion in February in a takeover deal in which the company sold existing shares led by Thrive Capital.