OpenAI in talks for tender offer at $29B valuation

OpenAI, the startup behind ChatGPT, is in talks to sell shares at a staggering $29 billion valuation, according to a report from The Wall Street Journal.

Venture capital heavyweights Thrive Capital and Founders Fund are in discussions to buy at least $300 million in shares through a tender offer. The deal would see investors purchase existing shares directly from shareholders like employees, more than doubling OpenAI’s prior $14 billion valuation from 2021.

Microsoft, Bing, and a Code Red at Google

ChatGPT became an overnight sensation after launching on November 30, crossing 1 million users in just five days, according to OpenAI chief Sam Altman.

Running those models requires an immense amount of computing power, meaning OpenAI burns cash quickly. The company claims tens of millions in current revenue and reportedly aims for $1 billion by 2024, but it clearly needs deep capital reserves to keep the servers humming.

Meanwhile, Microsoft is moving quickly to cash in on its 2019 partnership. Reports indicate Microsoft is planning to weave ChatGPT directly into Bing before the end of March to deliver conversational search results.

That prospect has reportedly triggered a code red inside Google. While Google has its own LaMDA conversational agent, management has been hesitant to deploy it broadly over reputational concerns about factual inaccuracies. With Google controlling roughly 83% of the search market compared to Bing’s 9%, the stakes are massive.

A capped-profit bet on AGI

OpenAI operates under an unconventional structure. Founded as a non-profit in 2015, it added a capped-profit arm in 2019 to fund computing costs.

Altman has stated that OpenAI does not plan to go public or be acquired. Because of that, secondary tender offers are essentially the only vehicle for early employees to cash out and for outside investors to get on the cap sheet.

According to The Wall Street Journal, investor profits are capped at around 20 times their original investment, with higher potential returns granted the longer they hold. Even with those constraints, demand remains white-hot.

Why it matters

We think this $29 billion valuation officially marks the moment generative AI shifted from an academic curiosity into an all-out Silicon Valley land grab.

For OpenAI, running a secondary share sale is a brilliant move. It provides liquidity to retain top-tier researchers without subjecting the company to the relentless quarterly scrutiny of the public markets. When tech giants are aggressively poaching AI talent, turning paper net worth into real cash matters.

However, the risks are substantial. Valuing a company with tens of millions in revenue at $29 billion requires an immense leap of faith. While analyst Rob Enderle suggests the valuation could actually prove conservative given the revolutionary nature of the tech, Altman himself warned last month that relying on ChatGPT for anything important right now is a mistake.

What is clear is that OpenAI has backed Google into a corner. By forcing Microsoft’s hand to reinvent Bing, the conversational AI race is no longer a multi-year road map. It is happening right now.