OpenAI's stunning $150 billion valuation hinges on upending corporate structure, sources say

OpenAI's new financing 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 be contingent on whether the ChatGPT-maker can upend its corporate structure and remove a profit cap for investors.

The details of the conditions of the $6.5 billion funding, which have not been previously reported, show how far OpenAI, the most valuable AI startup in the world, has come from a research-based non-profit, and the structural changes it's willing to make to attract ever more investment to fund its expensive pursuit of artificial general intelligence (AGI), or AI that surpasses human intelligence.

The outsized funding round has seen strong investor demand and could be finalized in the next two weeks, given the rapid growth of OpenAI's revenue, sources added.

Existing investors such as Thrive Capital, Khosla Ventures, as well as Microsoft MSFT are expected to participate. New investors including Nvidia NVDA and Apple AAPL also plan to invest. Sequoia Capital is also in talks to come back as a returning investor.

If the restructuring is unsuccessful, OpenAI would need to renegotiate its valuation with investors at which their shares will be converted, likely at a lower number, sources told Reuters, who requested anonymity to discuss private matters.

Asked about the financing and potential change, OpenAI said in a statement that it remains focusing on building AI that benefits everyone while working with its non-profit board.

"The nonprofit is core to our mission and will continue to exist," the company spokesperson said.

The removal of the profit cap would require approval from OpenAI’s non-profit board, consisting of Chief Executive Sam Altman, entrepreneur Bret Taylor and seven other members.

The company has also held discussions with lawyers about turning its non-profit structure to a for-profit benefit corporation, similar to what its rivals such as Anthropic and xAI are using, sources added, confirming media reports.

It is unclear if such fundamental corporate structural changes could happen. The removal of the profit cap, which put a limit on investors' potential returns in OpenAI's for-profit subsidiary, would hand early investors an even bigger win.

It could also raise questions about OpenAI's governance and departure from its non-profit mission. OpenAI has said the cap was put in place to "incentivize them to research, develop, and deploy AGI 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 building AI for the benefit of humanity, is currently controlled by a non-profit parent organization.

It has accelerated its commercialization efforts by selling subscription-based services like ChatGPT to consumers and enterprises, which now boasts over 200 million users.

Existing investors are beholden to a capped limit to their return on investment, with any additional returns to be routed to the non-profit.

Returns were capped at 100x the investment for investors in OpenAI’s first round of financing. “We expect this multiple to be lower for future rounds,” the company said in a 2019 blog post detailing the structure.

OpenAI used this model to raise more than $10 billion in recent years, with the majority coming from Microsoft. It was last valued at $80 billion in February in a tender offer deal where the company sold existing shares led by Thrive Capital.