Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
OpenAI is in talks with investors about selling shares at a valuation of $86bn, roughly three times what it was worth six months ago, as advances in artificial intelligence transform the market’s appetite for the industry’s leading companies.
A stock sale at the level OpenAI is targeting would make the San Francisco-based group behind the ChatGPT chatbot one of the world’s most highly valued private companies.
It was reportedly valued at $29bn in April this year, when it raised money from investors including Microsoft and Thrive Capital, according to people with knowledge of the matter.
OpenAI, which launched ChatGPT late last year, had been in discussions with existing investors about a tender offer to enable employees to sell their stock, according to several people with knowledge of the discussions.
It is not clear whether the stock sale would be open to new investors as well as existing ones, which include prominent venture capital funds such as Sequoia Capital, Andreessen Horowitz, Khosla Ventures and Joshua Kushner’s firm, Thrive Capital.
OpenAI declined to comment.
Offering employee stock to investors via a tender offer is a way of letting staff cash in on the company’s success. In turn, that is expected to help OpenAI compete with other start-ups and more established rivals including Google and Amazon in the war for engineering talent, a person familiar with the company’s thinking said.
The eight-year-old start-up is the most prominent among a group of companies working to build powerful chatbots, underpinned by generative AI, which are capable of engaging with users in a human way.
Those companies, including Anthropic, Cohere and Inflection, have also recorded sharp increases in valuation as chatbots have started to be used more frequently by the public in the past year.
After it was released in November last year, ChatGPT is estimated to have drawn 100mn monthly active users within two months, making it the fastest-growing application ever launched. Since then, OpenAI has launched a mobile app version, and added features including image generation and analysis to ChatGPT.
Training chatbots such as ChatGPT requires enormous amounts of computing power and capital. Start-ups at the forefront of the technology are required to raise huge sums, strike partnerships with established technology companies which can provide infrastructure and computing power, or both.
Despite the demands for fresh capital, OpenAI was not seeking to raise money from Middle Eastern sovereign wealth funds, which have been increasingly active investors into Silicon Valley, according to two people familiar with the company’s plans.
OpenAI has reportedly hit more than $1bn in annual revenue and rolled out video- and speech-recognition capabilities for ChatGPT.
An $86bn valuation would imply a multiple to revenue which is normally beyond the scope of venture capitalists. But OpenAI’s “stunning” rate of technological progress and revenue growth could quickly change those calculations, according to Vinod Khosla, whose fund was an early backer in 2018.
The Wall Street Journal first reported that OpenAI was seeking a valuation of $80bn-$90bn. Bloomberg reported the company had narrowed that range to $86bn.
Additional reporting by Ivan Levingston in London
