Apple has exited discussions to participate in OpenAI's anticipated $6.5 billion fundraising round, as reported on Friday. The tech giant recently withdrew from talks that were expected to conclude next week. The negotiations are still ongoing, so the participants and funding amounts may change.
OpenAI decided to increase the funding amount due to the high costs associated with building large AI systems. The company initially aimed to raise $6.5 billion at a $150 billion valuation and planned to secure an additional $5 billion in revolving debt from banks. Thrive Capital is leading the funding round, with significant contributions expected from Microsoft, which plans to invest about $1 billion, having already invested $13 billion in OpenAI. Nvidia is also looking to invest $100 million, and Sequoia Capital is in discussions to return as an investor.
OpenAI's CFO Sarah Friar mentioned that the funding round is oversubscribed and will conclude next week. The reason behind Apple's sudden withdrawal remains unclear. Analysts speculate that it could be related to the departure of key personnel from OpenAI. This week, OpenAI's CTO Mira Murati, who has been with the company for six and a half years, resigned. Following her departure, Chief Research Officer Bob McGrew and Vice President Barrett Zoph also left the company.
Other analysts believe it might be linked to OpenAI's recent plans to transition into a for-profit company. Founded in 2015 as a non-profit, OpenAI became a for-profit startup in 2019 and currently defines itself as a capped-profit organization, meaning investor returns are capped, with any additional returns going to a non-profit. To achieve the $150 billion valuation, OpenAI would need to change its structure and remove the profit cap for investors. If it can't alter its structure, it might have to renegotiate its valuation with investors, potentially resulting in stock conversions at lower figures. Reports suggest that if OpenAI fails to become a profitable enterprise within two years, the funding will convert into debt.
Further complications could stem from a financial document indicating that OpenAI's revenue generation lags behind its spending. The company is expected to generate $3.7 billion in revenue this year but incur losses of around $5 billion. According to a financial expert who reviewed the document, OpenAI will lose roughly $5 billion this year after covering operating costs, employee wages, and office rents. The document also indicates that OpenAI will need to continue raising funds next year due to increasing operational expenses driven by the growing user base for its products.
