Is ChatGPT Now Worth $9 Billion? OpenAI's Valuation May Be Approaching $30 Billion
Founders Fund and Thrive Capital Named as Buyers by Wall Street Journal
The Wall Street Journal reported today that OpenAI insiders and early investors might sell shares to two venture capital firms at a $29 billion implied valuation.
“OpenAI, the research lab behind the viral ChatGPT chatbot, is in talks to sell existing shares in a tender offer that would value the company at around $29 billion, according to people familiar with the matter…
“Venture-capital firms Thrive Capital and Founders Fund are in talks to buy shares, the people said. The tender could total at least $300 million in OpenAI share sales, they said. The deal is structured as a tender offer, with the investors buying shares from existing shareholders such as employees, the people said.”
Doubling the 2021 Valuation
The Wall Street Journal also reported there was a tender offer of existing shares sold in 2021 at a $14 billion implied valuation. It appears that Sequoia Capital and Tiger Global Management were among the buyers in that round. The Information published an article in October 2022 suggesting the valuation may have been $20 billion in that 2021 tender offer. It seems more likely that the higher figure referred to a new investment under consideration by Microsoft in the fall of 2022.
Regardless, a rise from $14 billion to $20 billion in a year and then $29 billion a couple of months later is impressive. These are large numbers, making this valuation growth rate harder to achieve than your typical startup. But, new products and strong revenue growth have changed the OpenAI valuation calculus.
2022 Was About New Products and Revenue
OpenAI had a good year in 2022. Its text-to-image AI model, DALL-E, launched and helped create a new technology category that started generating revenue immediately upon public release. Revenue for several GPT-3 API users also began to grow, with Jasper AI reportedly taking in $80 million. Some of that went directly to OpenAI.
Microsoft’s GitHub Copilot became publicly available in June and landed 400,000 subscribers at $10 per month in just 30 days. Copilot uses OpenAI’s Codex model. GitHub announced the business version of the software in early December at $19 per month. This will lead to more revenue for OpenAI.
Then ChatGPT came along and became a massive hit, landing 1 million free users in just five days. There is no paid option at the moment, but you can be sure that it will be coming in 2023. This was followed by another, less hyped announcement for OpenAI’s new 3D image generator called Point-E.
Bloomberg reported that OpenAI started generating “tens of millions” of dollars in revenue in 2022, and the 2023 forecast is for $200 million. More impressively, from an optics standpoint, the sources suggested that the 2024 revenue forecast was for $1 billion.
Is ChatGPT Worth $9 Billion?
Let’s say the Wall Street Journal and The Information each had valid scoops. That would suggest the financial performance of the GPT-3 API and the launch of DALL-E and InstructGPT products by OpenAI, combined with GitHub Copilot, helped raise the company’s valuation by about 50% to $20 billion.
So, what would account for the additional valuation increase of another 50% over the last three months in late 2022? Surely, revenue growth and higher projections might have impacted the shift but probably not very much over a couple of months. ChatGPT clearly played a big role.
GPT-3 has API users for everything from blog writing software to contract drafting for lawyers. ChatGPT opens up at least two new large markets: search and personal assistants. There is some staunch skepticism about whether and when ChatGPT technology will be ready for mass adoption for search. However, this is a $75 billion industry in the U.S. alone. If ChatGPT becomes used for search by Microsoft’s Bing or other services, it could capture a portion of this very large market.
Virtual assistants have a less clear monetization model. However, if ChatGPT-like solutions were to be integrated into a user’s job function, calendar, and other personal services, that may be a new $10 per month market OpenAI could tap into.
There is no way of knowing how much revenue ChatGPT will generate or whether the other products will meet growth expectations. However, companies with novel, broadly applicable technology can generate outsized returns. Investors may be forecasting that OpenAI has the potential to become the next tech giant.
