Could Investors Soon Buy Shares In The Creators of ChatGPT?
With each passing year, artificial intelligence (AI) is crawling off the pages of science fiction and becoming closer to reality.
Anyone with a passing interest in keeping up with the tech industry no doubt witnessed the rollout of ChatGPT during the final weeks of 2022.
ChatGPT is an advanced chatbot prototype built using powerful machine learning models. Its unprecedented capabilities to generate text based on user inputs has already increased speculation about the widespread economic implications of impending job automation at the hands of artificial intelligence.
Available for public use under a free (for now), open-source service model, ChatGPT has been used for a variety of purposes, including passing an MBA examination given by a Wharton professor.
But OpenAI, the company behind ChatGPT, is banking on adoption of this AI tool becoming much more widespread than educational purposes. During its time in the spotlight, OpenAI is starting to capitalize on the success and increasing popularity of ChatGPT, including a $10 billion additional investment from Microsoft.
While OpenAI is a privately held company, it is currently floating an exciting opportunity for outside investors to jump in via a secondary sale.
What is OpenAI?
OpenAI was founded in 2015 behind a leadership group consisting of Elon Musk and Sam Altman, former President of the startup accelerator Y Combinator.
The company's mission is to "ensure that artificial general intelligence benefits all of humanity".
OpenAI is most famous for its ChatGPT product, which is impressing those both inside and outside the technology industry for its ability to seemingly process human language and generate dialogue through text.
ChatGPT itself has several models for different use cases. For example, "Davinci" is considered the most powerful OpenAI model for generating the most dynamic text responses, while "Ada" is a faster model.
ChatGPT is not the only product developed by OpenAI. For instance, Dall-E is an AI image generator built using deep learning models, and Whisper is a text-to-audio transcribers based on a neural net.
Most of these services are open source and free to use from the San Francisco based startup.
What is OpenAI's business model?
OpenAI certainly has lofty revenue goals.
In 2023, OpenAI is targeting $200 million in annual revenue, and aims for $1 billion in revenue by 2024. OpenAI was originally founded as a non-profit, but shifted to a for-profit limited partnership (LP) entity structure in 2019.
This switch enabled the company to receive further access to venture capital. That same year, OpenAI also received $1 billion in funding from Microsoft. As mentioned above, earlier this week OpenAI's partnership with Microsoft was extended, to include up to an additional $10 billion over the next several years.
Microsoft is looking to incorporate the capabilities of ChatGPT and other OpenAI services into its leading services such as Azure and Office365. It might even make Bing search worth using.
At the same time, OpenAI is likely looking to expand its services into other commercial enterprise customers. Much of their existing revenue comes from licensing fees from using its models.
The pricing structure is on a pay-as-you-go or per-usage basis. For instance, image generation through Dall-E charges users per image generated.
Earlier this month, OpenAI rolled out a premium version of ChatGPT that costs $42 per month. It's unclear how long they plan to offer free trials of ChatGPT.
Finally, OpenAI is banking on future returns from investments in their internal OpenAI Startup Fund.
What is a secondary?
OpenAI's current technological innovations and revenue trajectory are exciting to many investors. Despite this, OpenAI remained off the table as a possible investment due to its status as a privately held company.
At least, this was the case until the Wall Street Journal reported earlier this month that OpenAI was in talks with venture capital firms to hold a secondary sale.
In venture capital, a secondary sale or secondary market transaction is an event that occurs when outside investors are able to purchase stock of a private company.
These types of events are also referred to as a tender offer, when investors bid to purchase shares being sold from existing shareholders. Often, these shares are sold by employees looking for liquidity or asset diversification.
Startups and companies that undergo a secondary share often set specific terms and guidelines of the transactions. For example, there is typically a set price and number of shares to be sold ahead of time.
OpenAI is in discussions with the Thrive Capital and Founders Fund venture capital firms to partner with during this deal.
Reports indicated that the deal would consist of $300 million worth included in the secondary sale, leading to an estimated $29 billion valuation for OpenAI.
Investors should keep in mind that these discussions are still underway.
Continue following Venley Capital for further updates and potential opportunities to participate in the OpenAI secondary sale.