OpenAI, the company behind the ChatGPT chatbot which has been making waves globally, is reportedly looking to sell shares in a tender offer that could value the company at $29 billion.
Here it is worth noting that a tender offer is different from a funding round. While in a funding round, startup companies raise funds from investors, a tender offer gives the exit route to existing investors and employees who hold ESOPs.
In 2021, OpenAI tendered shares in an open offer which valued the company at $14 billion. This basically means that the company’s valuation has more than doubled since then. The valuation boost looks encouraging considering the bloodbath in other startup companies.
There has been a funding winter for startup companies and many have shut down. This includes Argo AI which was backed by Ford and Volkswagen. Many others have resorted to mass layoffs amid pressure from investors to cut their losses.
Even if startup companies managed to raise funds it has been at a massive haircut. BNPL (buy now pay later) company Klarna for instance raised funds at an 85% haircut to its previous valuation.
The fall in valuations of startup companies is not hard to comprehend. Talking of the fintech space only, PayPal lost 62% of its market cap last year and had its worst year ever since the 2015 split from eBay. Affirm, another BNPL darling trades at a fraction of its IPO price.
OpenAI Valuation Surges amid ChatGPT Popularity
OpenAI has meanwhile seen a rise in its valuations and joins the rare breed of startup companies whose valuations have risen over the last year. SpaceX is also reportedly looking to raise $750 million at a $137 billion valuation. The valuation is higher than the previous round.
SpaceX founder Elon Musk was among the initial backers of OpenAI also. However, he later grew critical of the company and criticized it for licensing GPT-3 exclusively to Microsoft. Microsoft and OpenAI are now working on a ChatGPT-powered version of Bing.
Microsoft is among the investors of OpenAI. D.A. Davidson believes that Microsoft’s investment in OpenAI would help it challenge the dominance of Google. The brokerage initiated coverage on Microsoft with a buy rating and a $270 target price. There is a guide on how to buy Microsoft stock.
No Funding Winter for ChatGPT
Given the turmoil in public markets, valuations of private startup companies have also come down. TikTok-parent ByteDance’s valuation has also come down. ByteDance is however still the most valued startup company despite losing billions of dollars last year.
Many startup companies including Instacart and Kurly have delayed their IPO plans as the market has been cold to new listings, especially of richly valued tech startups. There is a list of some of the upcoming IPOs.
Meanwhile, thanks to the growing popularity of ChatGPT, OpenAI does not seem to be facing any funding winter. Microsoft, which previously invested $1 billion in the company is reportedly looking to increase the investment further.
In the current tender offer, Thrive Capital and Founders Fund are looking to invest around $300 million. Tiger Global Management and Khosla Ventures are among the current OpenAI investors.
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