OpenAI’s eye-popping $150 billion valuation hinges on a change in corporate structure, report says

OpenAI’s new funding round 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 its corporate structure and remove a cap on profits for investors.

The details of the terms of the $6.5 billion funding, which have not been previously reported, show the extent to which OpenAI, the world’s most valuable AI startup, has transitioned from a research-based nonprofit, and the structural changes it is willing to make to attract ever more investment to fund its expensive quest for artificial general intelligence (AGI), or AI that surpasses human intelligence.

The large funding round has generated strong investor demand and could close in the next two weeks given OpenAI’s rapid revenue growth, the sources added.

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

If the restructuring is not successful, OpenAI would have to renegotiate its valuation with investors at which its shares will be converted, likely at a lower number, sources told Reuters on condition of anonymity to discuss private matters.

Asked about funding and the potential shift, OpenAI said in a statement that it remains focused on developing AI that benefits everyone while working with its nonprofit board.

“The nonprofit is central to our mission and will continue to exist,” the company spokesperson said.

Removing the profit cap would require approval from OpenAI’s nonprofit board, which includes CEO Sam Altman, entrepreneur Bret Taylor and seven other members.

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

It’s unclear whether such fundamental corporate structural changes could happen. Removing the profit cap, which limited the potential returns of investors in OpenAI’s for-profit subsidiary, would give early investors an even bigger payout.

It could also raise questions about OpenAI’s governance and its move away from its nonprofit mission. OpenAI has said the cap was put in place to “incentivize them to research, develop, and deploy IAG in a way that balances commerciality with safety and sustainability, rather than focusing on pure profit maximization.”

The San Francisco-based AI lab, founded in 2015 as a nonprofit research project with the goal of developing artificial intelligence for the benefit of humanity, is currently controlled by a nonprofit parent organization.

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

Existing investors are subject to a maximum return cap on their investment, and any additional returns will go to the nonprofit.

In OpenAI’s first round of funding, investors were able to earn a return of 100 times their investment. “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, most of it from Microsoft. It was last valued at $80 billion in February, in a takeover bid in which the company sold existing shares led by Thrive Capital.