OpenAI asks investors not to back rival start-ups such as Elon Musk’s xAI

OpenAI has asked investors to avoid backing rival start-ups such as Anthropic and Elon Musk’s xAI, as it secures $6.6bn in new funding and seeks to shut out challengers to its early lead in generative artificial intelligence.

The San Francisco-based group, led by chief executive Sam Altman, announced on Wednesday it had completed its latest fundraising at a $150bn valuation, the highest in Silicon Valley’s history.

During the negotiations, the company made clear that it expected an exclusive funding arrangement, according to three people with knowledge of the discussions.

Seeking exclusive relationships with investors restricts rivals’ access to capital and strategic partnerships. The move by the maker of ChatGPT risks inflaming existing tensions with competitors, especially Musk, who is suing OpenAI.

Venture firms are party to sensitive information about the companies they invest in, and close relationships with one company can make it difficult or contentious to also back a rival.

But exclusivity is rarely insisted on, according to VCs, and many leading firms have spread their bets in certain sectors. Sequoia Capital and Andreessen Horowitz, for instance, have backed multiple AI start-ups, including both OpenAI and Musk’s xAI.

OpenAI can command unusual terms and an outsized valuation because investors believe the company could dominate the next wave of AI innovation, which they argue will be as significant a shift in consumer behaviour as the internet or mobile.

“Because the round was so oversubscribed, OpenAI said to people: ‘We’ll give you allocation but we want you to be involved in a meaningful way in the business so you can’t commit to our competitors,’” according to one person with knowledge of the deal.

A partner at one leading VC firm noted that ride-hailing app Uber had a similar policy “when they were in full world-domination mode”, adding: “If a company holds all the cards, they can force people to do things unnaturally.”

Thrive, a venture capital firm founded by Joshua Kushner, was leading the round and had committed $750mn from its own funds, as well as roughly $550mn from its partners, according to a person with knowledge of the terms.

The firm had also retained an option to invest a further $1bn before the end of 2025 at a $150bn valuation, according to three people with knowledge of the deal.

Chipmaker Nvidia and Microsoft, which has already committed $13bn to OpenAI, also participated in the round. Apple, which had been in talks with the company to invest, did not.

Other firms including early OpenAI backer Khosla Ventures, SoftBank, Tiger Global, Altimeter Capital and the California Public Employees’ Retirement System have invested either directly or via special purpose vehicles, according to multiple people with knowledge of the deal.

Khosla’s vehicle could put in a total of $500mn or more, according to two of the people.

SPVs — entities through which venture funds can raise capital for a specific purpose — were also used as part of large funding rounds for AI start-ups Anthropic and xAI in recent months, according to people with knowledge of the deals.

“The new funding will allow us to double down on our leadership in frontier AI research, increase compute capacity, and continue building tools that help people solve hard problems,” said OpenAI.

It added that it would work with “key partners, including the US and allied governments [to] unlock this technology’s full potential”.

The deal almost doubles OpenAI’s valuation from the $87bn less than a year ago, and at five times the level investors valued it at in April last year.

Investors have had to consider the company’s recent tumult, including a boardroom coup a year ago in which founder Altman was briefly ousted. Last week, chief technology officer Mira Murati announced she would be leaving the company in a surprise move — the latest in a number of senior departures this year.

OpenAI is also working on a corporate restructuring that would move the start-up further from its origins as a non-profit, and allow investors to capture more of the upside should the start-up turn a profit.

Altman had held talks to hold equity in the company as part of the new fundraising, according to people familiar with the discussions, having previously said he did not want to take an ownership stake in the group.

However, he has dismissed reports that he will get an equity stake of 7 per cent in the new for-profit entity — which would be worth more than $10bn — as “ludicrous” in a staff town hall.

Musk, who co-founded and helped finance OpenAI in 2015 but stepped down three years later, filed a lawsuit in August that alleges the start-up abandoned its original not-for-profit mission to benefit humanity when it agreed a commercial partnership with Microsoft.

Musk accused Altman of “deceit of Shakespearean proportions” and the lawsuit seeks to void the Microsoft deal, which is also being probed by US and European antitrust regulators.

Although OpenAI is the largest venture-backed company from Silicon Valley, it is surpassed in valuation by China’s ByteDance and SpaceX, located in southern California and founded by Musk.