OpenAI bags $40B in funding, increasing its post-money valuation to $300B – News

OpenAI has closed on one of the largest-ever funding rounds for a private company, raising $40 billion at a $300 billion post-money valuation.

The bumper funding round was led by SoftBank Group Corp. and saw participation from existing backers of OpenAI, including Microsoft Corp., Coatue Management, Thrive Capital and Altimeter Capital.

The $300 billion valuation makes OpenAI, led by its Chief Executive Sam Altman (pictured), the world’s second-most valuable private company alongside TikTok parent ByteDance Ltd., trailing only Elon Musk’s SpaceX Corp., which is valued at $350 billion, according to data from CB Insights.

In a brief blog post, OpenAI said the new funds would help it to “continue building AI systems that drive scientific discovery, enable personalized education, enhance human creativity, and pave the way toward AGI that benefits all of humanity.”

AGI refers to the idea of “artificial general intelligence,” or AI systems that exceed humans in their creativity and intelligence, which are a long-term goal for every major player in the industry today.

The company will use a significant chunk of the new funds to build out the necessary computing infrastructure to support its AI systems. According to CNBC, which quotes an anonymous source familiar with the matter, about $18 billion is being set aside for OpenAI’s Stargate initiative.

Startgate is a joint venture announced by U.S. President Donald Trump in January that also includes SoftBank, Oracle Corp. and MGX Fund Management Ltd., set up to invest up to $500 billion in AI infrastructure in the coming years.

OpenAI’s latest round dwarfs even the second-largest capital raise by a technology company. Back in 2018, Ant Group, an affiliate of Chinese e-commerce giant Alibaba Group Holding Ltd., raised a record-breaking $14 billion. That same year, a company called Juul Labs Inc., which manufactures electronic cigarettes, raised $12.8 billion, while the Chinese ride-sharing firm DiDi Global Inc. secured $10.8 billion in funding in 2019.

Other mega-funding recipients in recent years include Databricks Inc., which raised $10 billion in funding in December, matching OpenAI’s prior $10 billion round in 2023.

It has taken a while for OpenAI to finalize the details of its latest funding round. Reports of discussions with investors first emerged at the end of January. The lengthy discussions were likely necessary due to the intricate nature of the agreement.

CNBC reporting that the company will receive only $10 billion of the funds initially. To obtain the rest of the money, it will need to make good on its promise of becoming a for-profit entity by the end of the year. Should it fail to do this, the funding amount may be slashed by up to $10 billion, meaning it would only get $30 billion in total.

OpenAI will therefore need to get a move on. The company first announced its intention to transition from a nonprofit research lab to a for-profit company last year, but it will need to secure the blessing of California’s Attorney General in order to pull it off. It’s also facing a court battle with Musk, one of its original co-founders, who has filed a lawsuit in an effort to halt its transition.

The company currently operates under an unusual hybrid structure, where the original nonprofit organization owns and operates a capped-profit limited liability company that would be spun out as an independent firm under the planned transition. Should it proceed, OpenAI’s investors would be able to swap the convertible notes they have received for equity in the for-profit entity.

OpenAI’s investors are betting that the company will be able to maintain its perceived lead in the generative AI industry, which is expected to grow to more than $1.3 trillion by 2032, according to a forecast by Bloomberg Intelligence. It’s a huge opportunity, but OpenAI faces stiff competition in the race to grab a slice of that pie, with the likes of Google LLC, Microsoft, Amazon Web Services, Anthropic PBC and Perplexity AI Inc. just some of the companies it’s competing with.

Should OpenAI require even more funding in future, it’s likely that its next step would be to list itself on the stock exchange through an initial public offering, but it’s not clear when such a move would happen.

Last week, CoreWeave Inc. became the first pure-play AI company to launch an IPO, though it’s more focused on hardware infrastructure. But it didn’t go too well, with its stock falling more than 7% on Monday.

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