Inside the structure of OpenAI’s looming new investment from Microsoft and VCs (2023)

If all goes according to OpenAI’s financial plans, Microsoft will close a $10 billion investment deal into the artificial intelligence startup before the end of this month, as Jeremy Kahn and I reported yesterday and according to documents seen by Fortune.

That would be an enormous investment in a market environment where founders are struggling to get prospective investors to even pick up the phone—and for a company that isn’t profitable and likely won’t be for some time.

Microsoft’s bet on OpenAI appears to be even bigger than was previously known. The documents suggest that, prior to this deal, Microsoft had already poured $3 billion into the company—$2 billion more than has been publicly reported. If the current deal is completed at the figures being discussed, the cap table in the documents states that Microsoft will have contributed a total of $13 billion in capital to OpenAI, underscoring how important it believes the technology behind ChatGPT and DALL-E 2 is to its future.

Documents related to the looming investment paint a highly unusual deal structure that appears to be tilted in Microsoft’s favor. But, owing to OpenAI’s hybrid structure—with a non-profit lab and a capped-profit business arm—and its extensive commercial partnerships with Microsoft, there are countless variables that could affect how things ultimately play out and pay out. Here are a few key takeaways based on our analysis of the documents.

Venture capitalists are investing in OpenAI through a tender offer of employee shares, happening in parallel to Microsoft’s potential investment, as we previously reported. All investors—including Microsoft—have caps on their potential returns. That isn’t to say the potential returns are small: Documents show that should OpenAI’s technology become extraordinarily successful and profitable, Microsoft would be able to make as much as $92 billion from its collective investment, and venture capitalists that participate in the tender offer would be able to garner up to $150 billion. (An OpenAI spokeswoman declined to comment for this story, and a Microsoft spokesman didn’t respond to a request for comment.)

Microsoft will receive preferential treatment when it comes to OpenAI profits. The documents lay out how investors will be reimbursed once OpenAI starts posting a profit. “First close partners” will be reimbursed their principal first (it’s unclear whether “first close partners” refers to OpenAI’s early investors, Khosla Ventures and Reid Hoffman’s foundation, or other subsequent investors in the company). Once that has happened, 75% of OpenAI’s profits will flow directly to Microsoft until the sum that Microsoft invested in OpenAI is reached. Here is a graphical representation of how the economics are structured:

Inside the structure of OpenAI’s looming new investment from Microsoft and VCs (1)

While the terms look like a win-win for Microsoft, it could end up being quite a while before Microsoft, or any of the other investors, see a meaningful return on that investment. Documents show that, as of the end of last year, OpenAI was projecting a loss of more than $508 million for 2022. The company has projected $1 billion in revenue in 2024, as was first reported by Reuters, but it’s unclear what it expects its costs to be in the years ahead. According to the documents, OpenAI expected that its costs in 2022 would total somewhere around $544.5 million.

Will OpenAI need to increase its spending in order to achieve its revenue target in 2024? Or maybe the deal with Microsoft will allow it to stabilize its spending by taking advantage of Microsoft resources, such as cloud computing infrastructure and salespeople? The answers to those questions will help determine when OpenAI might swing to a profit, and consequently when Microsoft would begin to recoup its investment. As for venture investors, an active secondary market for OpenAI shares could help offer liquidity and returns more quickly than OpenAI’s planned profit structure allows.

Of course, an investment in OpenAI is not really a play for short-term profits. A bet on OpenAI is a bet that its generative A.I. technology could override the way everyday people access the internet (Google’s management team is reportedly worried about this possibility); it’s a bet that the OpenAI technology—more so than any generative A.I. technology that may come out of Google, Amazon, or Oracle—could power a universe of high-performing digital assistants that are more effective than humans; and it’s a bet that, just maybe, OpenAI becomes the first company to create computers that can think and learn, which could “be the most important technological development in human history,” according to OpenAI CEO Sam Altman.

David Beisel, co-founder and partner at VC firm NextView Ventures (which is not involved in the OpenAI tender offer), says that OpenAI is a way for venture firms to get in early to “the next potential platform shift.”

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“There’s a desire to not just be a part of this company specifically, but the beginning of this broader platform shift,” Beisel says. “When you’re part of it early, and when you’re part of the early successes, the success compounds.”

See you tomorrow,

Jessica Mathews
Twitter: @jessicakmathews
Submit a deal for the Term Sheet newsletter here.

Jeremy Kahn contributed to the reporting of this essay, Nicolas Rapp designed the chart, and Jackson Fordyce curated the deals section of today’s newsletter.


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- BioNTech agreed to acquire InstaDeep, a London-based decision-making A.I. platform, in a deal worth as much as £562 million ($684 million).

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- Capstreet, a Houston-based private equity firm, promoted Kevin Johnson to partner and Evan Harmon to vice president.

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(Video) Chamath Palihapitiya: "You Have No Idea How Huge This is.." (MICROSOFT BUYING chatGPT)


Why is Microsoft investing in OpenAI? ›

“We formed our partnership with OpenAI around a shared ambition to responsibly advance cutting-edge AI research and democratize AI as a new technology platform,” said Satya Nadella, Chairman and CEO, Microsoft.

Did Microsoft invest in OpenAI? ›

Microsoft on Monday confirmed it is making a “multibillion dollar” investment in OpenAI, the company behind the viral new AI chatbot tool called ChatGPT.

Who is invested in OpenAI? ›

On January 23, 2023, Microsoft announced a new multi-year, multi-billion dollar (reported to be $10 billion) investment in OpenAI. The investment is believed to be a part of Microsoft's efforts to integrate OpenAI's ChatGPT into the Bing search engine.

Is OpenAI owned by Microsoft? ›

Microsoft, which already plowed $1 billion into OpenAI in 2019 and invested again in 2021, is seeking an inside edge on some of the most popular and advanced artificial intelligence systems as it competes with Alphabet Inc., Inc. and Meta Platforms Inc. to dominate the fast-growing industry.

What is Microsoft's stake in OpenAI? ›

Under this structure, Microsoft will hold a 49% stake, other investors will have a 49% stake, and OpenAI's non-profit parent will hold the remaining 2%. The main advantage for Microsoft in this deal is the opportunity to work directly with OpenAI and influence the direction of its tools.

How is OpenAI funded? ›

Their latest funding was raised on Jan 23, 2023 from a Corporate Round round. OpenAI is funded by 9 investors. Microsoft and Bedrock Capital are the most recent investors. OpenAI has raised a total of $100M in a single venture fund, OpenAI Startup Fund .

How much is Microsoft investing in OpenAI? ›

The tech giant aims to remain at the forefront of generative artificial intelligence with its partnership with OpenAI.

Is Microsoft investing in AI? ›

Microsoft announces major investment in artificial intelligence startup OpenAI. Microsoft says it is making a “multiyear, multibillion dollar investment” in the artificial intelligence startup OpenAI, maker of ChatGPT and other tools that can write readable text and generate new images.

How much has Microsoft invested in AI? ›

Microsoft stepped in at the end of 2019 with a $1 billion investment in and partnership with OpenAI to help the company continue to develop artificial general intelligence (AGI) — that is, AI that can also learn and perform new tasks.

Who are the biggest investors in OpenAI? ›

Microsoft controls OpenAI

Microsoft is the biggest investor, and the company is working on throwing another $10 billion at OpenAI LP, giving Microsoft a 49% stake.

Does Elon Musk have shares in OpenAI? ›

Elon Musk doesn't currently own any shares in OpenAI. However, he did at one point own a stake in the company, but he sold his stake to Microsoft in 2018.

Does Elon Musk work with OpenAI? ›

Elon Musk, the founder of Tesla, has been involved with OpenAI since the company's founding in 2015. Musk was initially a part of the team that created the initial OpenAI charter and also became an advisor to the organization.

What is Microsoft doing in AI? ›

Create innovative AI solutions with Azure AI

Discover Azure AI—a portfolio of AI services for developers and data scientists with high-quality vision, speech, language, machine learning models, and more. Build on a trusted platform to deploy solutions quickly and easily.

Why is OpenAI recognized for changing the industry? ›

Why is OpenAI recognized for changing the industry? Besides improving artificial intelligence's capabilities, OpenAI has also built an ecosystem of apps to help with this endeavor. In the long run, this new ecosystem will provide new jobs and improve the global environment.

Is Microsoft a leader in AI? ›

Presence and leadership established

Microsoft reinforced its position as an AI industry thought leader, as well as established itself as a known presence in AI for targeted business customers.

Who owns the most equity in Microsoft? ›

Top 10 Owners of Microsoft Corp
StockholderStakeShares owned
The Vanguard Group, Inc.8.10%603,670,311
BlackRock Fund Advisors4.48%333,650,111
SSgA Funds Management, Inc.3.96%295,509,547
Fidelity Management & Research Co...2.43%181,253,642
6 more rows

How many GPUs does OpenAI use? ›

The supercomputer developed for OpenAI is a single system with more than 285,000 CPU cores, 10,000 GPUs and 400 gigabits per second of network connectivity for each GPU server.

Who is Microsoft's largest shareholder? ›

Bill Gates owns 103 million Microsoft shares, representing 103 million shareholder votes. The market value of Bill Gates's stake in Microsoft was $35 billion as of December 2021.

Which cloud does OpenAI use? ›

OpenAI, the San Francisco-headquartered developer behind ChatGPT, a generative artificial intelligence (AI) chatbot, relies on Microsoft Azure's cloud computing services.

Is OpenAI actually open source? ›

OpenAI has extended the capabilities of its text-to-image software from two dimensions into three with the release of Point•E, an open source project that produces 3D images from text prompts.

Do you have to pay for OpenAI? ›

OpenAI has 4 pricing edition(s), from $0 to $0.06. Look at different pricing editions below and read more information about the product here to see which one is right for you.

Who is the owner of OpenAI? ›

Who's Involved. OpenAI LP is governed by the board of the OpenAI nonprofit, comprised of OpenAI LP employees Greg Brockman (Chairman & President), Ilya Sutskever (Chief Scientist), and Sam Altman (CEO), and non-employees Adam D'Angelo, Reid Hoffman, Will Hurd, Tasha McCauley, Helen Toner, and Shivon Zilis.

Is Microsoft AI fundamentals worth it? ›

Certification in Azure Fundamentals offers numerous benefits, and the knowledge and skills to use it effectively justify the investment of time and effort needed to pass the exam. The certification verifies your understanding of cloud services and how to deliver using the Microsoft Azure cloud platform.

How much has Microsoft invested in Chat GPT? ›

The tech giant didn't give a financial figure, but it's rumored that the investment will be $10 billion as Microsoft looks to accelerate the breakthroughs in AI to benefit the world, according to a release.

What percentage of OpenAI is owned by Microsoft? ›

Rumors of this deal suggested Microsoft may receive 75 percent of OpenAI's profits until it secures its investment return and a 49 percent stake in the company. OpenAI says it remains a capped-profit company after this deal, allowing it to continue to raise capital with checks and balances in place.

Is Microsoft an ethical investment? ›

Does the company have ethical corporate governance principles? Yes. Microsoft checks all the important boxes for a shareholder-friendly board that practices ethical principles.

What are the best AI stocks to buy right now? ›

What AI stocks are worth investing in?
  • Microsoft (MSFT) We recently looked at how Microsoft is considering investing $10 billion into ChatGPT as this tech giant continues to invest in the field of AI. ...
  • Nvidia Corporation (NVDA) ...
  •, Inc. ...
  • Salesforce (CRM) ...
  • Alphabet Inc. ...
  • Tesla (TSLA) ...
  • Workday, Inc.
Jan 26, 2023

Who is the leading company in AI technology? ›

IBM is a leader in the field of artificial intelligence. Its efforts in recent years center around IBM Watson, an AI-based cognitive service, AI software as a service, and scale-out systems designed for delivering cloud-based analytics and AI services.

Which company has the most powerful AI? ›

10 Most Advanced AI Companies
  • International Business Machines Corporation (NYSE:IBM) Market Capitalization as of 12/5: $133.28 billion. ...
  • Salesforce, Inc. (NYSE:CRM) ...
  • Oracle Corporation (NYSE:ORCL) Market Capitalization as of 12/5: $214.16 billion. ...
  • Meta Platforms, Inc. (NASDAQ:META) ...
  • NVIDIA Corporation (NASDAQ:NVDA)
Dec 6, 2022

What is the number 1 AI company? ›

AI is used in various technologies like Automation, Machine Learning, NLP, Robotics, Self-driving cars, and Machine vision, etc. Master of Code Global, ThirdEye Data, DataRoot, DataRobot, and H2O are our top five recommended AI companies.

How does OpenAI generate revenue? ›

OpenAI is a technology company that publishes academic research and releases products in the field of artificial intelligence. OpenAI makes money from charging licensing fees to access its models, subscription fees, and via investment gains.

Who is the most powerful investor? ›

Warren Buffett is widely considered to be the most successful investor in history. Not only is he one of the richest men in the world, but he also has had the financial ear of numerous presidents and world leaders. When Buffett talks, world markets move based on his words.

Does Elon Musk still own OpenAI? ›

OpenAI is an independent organization, and while Elon Musk has been involved with the organization in the past, he is not directly involved in its day-to-day operations or decision-making.

Why did Elon Musk leave OpenAI? ›

In 2018, three years after the company came into being, Elon Musk resigned from OpenAI's Board to avoid any future conflict as Tesla continues to expand in the artificial intelligence field. However, Musk will continue to donate to its non-profit cause and be a strong advisor.

When did Microsoft buy OpenAI? ›

In 2019, Microsoft announced that it would invest $1 billion in OpenAI (roughly half in the form of Azure credits) to jointly develop new technologies for the Azure platform and “further extend” OpenAI's large-scale AI capabilities.

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