AI-focused startups are a dime a dozen right now, but OpenAI is getting a lot of attention from investors following the public release of the DALL-E image generator and ChatGPT chatbot. Microsoft, which is already working with the company, is reportedly planning to invest $10 billion in OpenAI. Neither company has yet to confirm the details, but if true, this investment would value OpenAI at an impressive $29 billion.
Reporters for Semafor got a look at the terms sheet describing the plans, but it’s unclear if the deal has been signed yet. Sources claim the company intended to have the contract signed by the end of 2022, but there’s no official announcement. However, the firm is allegedly letting employees sell their shares at the proposed $29 billion valuation.
The deal includes some unusual provisions for OpenAI, which has been open about the rate at which it burns through money. According to CEO and founder Sam Altman, each time someone interacts with one of its products like ChatGPT, it costs the company a few cents in server time. Microsoft previously invested $1 billion in cash and cloud computing credits — OpenAI uses the company’s Azure web services. If ChatGPT becomes as popular as some expect, this could help Microsoft compete with market leader Amazon Web Services.
OpenAI has been upfront about the capabilities and limitations of ChatGPT, which is based on the GPT-3 language engine.
The investment as revealed in the terms sheet includes some unusual stipulations for splitting profits. Microsoft would get 75% of OpenAI’s profits until it recoups the initial investment — a process that could take years, depending on how successful OpenAI is at turning its research into products. When Microsoft is paid back, the arrangement would switch back to a typical ownership stake, with Microsoft getting 49% of profits and other investors taking 49%. That leaves 2% for the non-profit behind OpenAI.
This report lends credence to another claim that Microsoft is exploring ways to integrate ChatGPT into Bing search results. The conversational AI has a knack for digesting and explaining large volumes of data in a human-friendly fashion. Late last year, Morgan Stanley published a report that suggested ChatGPT could be a threat to Google’s search dominance. If Microsoft sees things the same, $10 billion might seem like a real bargain. After all, that’s less than a quarter of a Twitter.
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