Funding the Future: OpenAI’s latest Capital Raise

OpenAI has dazzled both ChatGPT users and investors in the past two years. The company recently achieved another milestone — closing the largest ever private market funding round for a technology company, according to the New York Times.1 OpenAI raised nearly $7 billion at a $150 billion pre-money valuation. With revenue growing and business plans to continue their expansion, one of the companies at the center of AI commercialization is delivering.

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Investors in OpenAI have been rewarded for betting on the company to deliver ground-breaking intelligence technology. The company has continued to grow its equity value since Microsoft’s seed funding round in 2019 valued OpenAI at $1 billion. More recently, the company’s April 2023 funding round led to a valuation of $29 billion, according to Pitchbook data. This latest funding round, valuing OpenAI’s equity at $157 billion, means investors have continued to compound gains as the company rolls out new AI models and increase monetization. OpenAI’s valuation gain has even eclipsed public market rivals since their April 2023 funding round, with the company’s equity value increasing by 441%.

Supporting this rise in equity value is an impressive growth story. While ChatGPT sees nearly 250 million weekly active users, the vast majority use the free version of the large language model (LLM). However, documents seen by the Times detail that ChatGPT has approximately 10 million users that pay a $20 monthly fee to access the higher-powered paid version of the LLM.1 ChatGPT is expected to bring in $2.7 billion of revenue this year, with revenue estimates of approximately $11.6 billion in 2025.1

The scale and growth valuation of OpenAI parallels previous technology IPOs. Current investors in OpenAI, and investors in publicly traded AI-related stocks, are tasked with forecasting the future profit potential of a business. While OpenAI’s growth expectations are high, the valuation of the company is largely in line with technology peers should current estimates come to fruition. For example, when Meta (formerly Facebook) conducted their initial public offering (IPO) in 2012, it carried a higher market capitalization to sales ratio than OpenAI is estimated at currently. Google, on its IPO date, carried a slightly cheaper multiple, though negative sentiment around the DotCom crash years earlier may have still been weighing on investors’ minds. The table below details relevant metrics for all 3.

While OpenAI’s calculated equity value to sales ratio is based on numerous assumptions of forecasted growth and an unknown dilution potential, the data show that contemporary equity valuations are within a range of historical precedents.

OpenAI has achieved remarkable growth, cementing its place as a leader in AI commercialization. With its recent $7 billion funding round, the company has rewarded investors handsomely. OpenAI has grown its equity value at a faster pace than publicly traded AI-related stocks even since its post-ChatGPT funding round. Despite most users accessing ChatGPT for free, its paid subscriber base generates substantial revenue, and the company has plans to increase monetization in the future. Should the company’s growth plans come to fruition, its valuation may prove reasonable in the context of other technology darlings. OpenAI’s investors have Funded the Future and empowered the company to deliver generation-defining technology such as ChatGPT. Investors and OpenAI signal there’s more to come.

 

For more content by Blake Anderson, Senior Analyst, Investments click here.

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