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Writer's pictureRana Bakır

Competition in AI Heats Up as OpenAI Gets New Investments

OpenAI announced Wednesday that it has closed a $6.6 billion fundraising deal that nearly doubles the company’s valuation from nine months ago. The new round was led by investment firm Thrive Capital, with other investors including Microsoft, Nvidia, SoftBank, and UAE investment firm MGX also contributing funds to OpenAI. The company is also dealing with a few departures.

New Investments

The company launched ChatGPT in 2022, kicking off the AI revolution, and this has triggered a race to invest in startups developing similar technologies. This latest investment is an indication that interest in AI is still popular despite security and efficiency concerns. This could be promising for other AI startups (although there are tons of new and old AI startups in the market). While investors are pouring billions of dollars into AI projects for big tech companies, investments in small companies have decreased significantly this year (which is usually due to the fact that these small projects do not have that much promise or the demand for popular investments). However, the fact that OpenAI is the most popular AI on the market has given the company a big plus and has skyrocketed revenues. For example, OpenAI expects to earn $3.7 billion this year and has 1,700 employees.

But OpenAI is losing billions of dollars due to the high costs of developing AI technologies like ChatGPT. The company is projecting a $5 billion loss due to operating its services and other expenses. Microsoft even signed a 20-year energy deal with Three Mile Island (TMI) just to meet its AI energy needs.

In addition, Thrive Capital invested $1.3 billion in OpenAI, $750 million of which came from its own fund and $550 million from other investors. Unlike other investors, Thrive Capital has the option to invest another $1 billion by 2025 at the same $157 billion valuation. In the past, Sam Altman stated that OpenAI's value had exceeded $150 billion and asked investors not to invest in its competitors.

Separations

The new funding comes as the startup, valued at $80 billion nine months ago, struggles with growth pains. The unexpected ouster of CEO Sam Altman in 2023 marks the beginning of a difficult process. Altman returned five days later, but the company has already lost high-profile employees. CTO Mira Murati, chief research officer Bob McGrew and vice president of research Barret Zoph are also leaving the company.

On October 4, when our article was published, Durk Kingma, one of the founders of OpenAI , joined rival Anthropic. Kingma played key roles in the development of DALL-E and ChatGPT, and when joining Anthropic, he said, "Anthropic's approach to AI development aligns significantly with my beliefs."

Summary

OpenAI was founded as a nonprofit in 2015, but after Elon Musk left and stopped funding, Sam Altman transitioned the company to a limited for-profit system. This system offers investors the opportunity to make a profit, but the profits remain limited, and the company’s original board of directors was not accountable to investors. And furthermore, OpenAI is expected to transition to a for-profit company in the coming years, or else the new funding will cost them and come back as debt.


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