OpenAI

Performance

1.52x

OpenAI is an AI research organization who's mission is to develop "safe and beneficial" artificial general intelligence, which they define as highly autonomous systems that outperform humans at most economically valuable work.

Memo Highlights

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Highlights

DEAL

Type: Secondary preferred shares‍
Price: $157B valuation
Fees: 15% access fee (underlying fund), 1% mgmt fee, 20% carry‍ (including underlying fund carry)
Structure: 2nd & 3rd layer SPV options (1st layer is a US multi $B cap table fund), Qualified Purchasers
Closing: Friday 28th Feb

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LATEST INFO

$40B round at $340B valuation
Revenue could hit $11B in 2025
Stargate announced
GPT5 ‍
Rolls out Deep research ‍
Used by 90% fortune 500
Projecting $12B revenue by 2025, $26B by 2026, $100B by 2029
Market opportunity of $1.6T by 2032
Investors believe OpenAI will be a $1T company in the next few years

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Introduction

OpenAI has cemented itself as the dominant force in generative AI, with accelerating growth across consumer and enterprise markets. This memo evaluates its strategic positioning, anchored by a $157B valuation (7), $5B annual revenue (7), and technological leadership in large language models (LLMs). Key investment highlights include:

Market dominance: 400M weekly active users, 2M enterprise customers, and 248% YoY revenue growth (4 7)
Technological moat: Proprietary models (GPT-4o, Strawberry, o3) with reasoning capabilities unmatched by competitors (1 3)
Structural advantages: $16.6B total funding (7), partnerships with Apple/Microsoft/Nvidia (1), and infrastructure scaling through Azure supercomputers (1)
Growth vectors: Enterprise API adoption (5x o3 usage growth (4)), deep research agents (3), and pending $6.5B funding round at $150B pre-money valuation (1)

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Problem: The Limits of Current AI Systems

Modern enterprises face critical gaps in AI capabilities despite massive investments. Legacy systems struggle with three core challenges:

Reasoning limitations: Most LLMs fail at multi-step logical tasks like mathematical proofs, code debugging, and scientific analysis (3). Over-refusal rates remain problematic, where models reject valid requests due to excessive caution about hypothetical risks (2).
Research inefficiency: Knowledge workers spend 20-30% of their time gathering/validating information across disjointed sources (3). No existing solution automates synthesis of technical papers, financial reports, and multimedia data at scale.
Compute constraints: Training frontier models now costs $500M-$1B, while inference demands outpace GPU availability (1 7). Competitors face 2-3x higher inference costs versus OpenAI’s Azure infrastructure advantage (1).

These limitations create a $280B market opportunity for AI systems that combine human-like reasoning with enterprise-grade scalability (7).

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Solution: The OpenAI Technology Stack

OpenAI addresses these challenges through three interconnected product pillars:

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1. Foundation Models

The proprietary model architecture powers all offerings:

GPT-4o: Current flagship model with 10T parameters, 57% lower hallucination rate vs GPT-4 (3)
Strawberry (Q4 2024): Next-gen LLM demonstrating 83% accuracy on IMO math problems vs 12% for GPT-4 (1)
o3 Reasoning Engine: Optimized for RAG (retrieval-augmented generation) and multi-hop analysis (3)

2. Enterprise Solutions

ChatGPT Teams: $25/user/month plan with 98% uptime SLA and private model tuning (4)
API Suite: 2M developers building on o3, which processes 1B+ daily requests (47)
Deep Research Agent: Autonomous analysis of 500+ sources per query, reducing research time from hours to minutes (3)

3. Compute Infrastructure

Microsoft partnership provides exclusive access to:

Stargate Supercomputer: 5M H100 GPUs for training Strawberry1
Orion Inference Clusters: 45% lower latency vs Google TPUv51

This vertically integrated stack creates 12-18 month lead over competitors in model quality and cost efficiency (1 3 7).

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Market Opportunity

AI Software Market Dynamics

Sector2024 Size2029 ProjectionCAGREnterprise AI$72B$407B41.3%Consumer AI$28B$129B35.7%AI Developer Tools$15B$94B44.5%

Source: Sacra Analysis7, Gartner 2025

OpenAI uniquely straddles all three sectors:

Enterprise: 2M paid business users, including 47 Fortune 100 accounts4
Consumer: 400M MAU ChatGPT base growing 33% quarterly4
Developers: 82% of generative AI startups build on OpenAI APIs7

The Apple partnership provides distribution to 2B iOS devices, while Microsoft Azure integration captures 60% of cloud AI workloads1 4.

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Competitive Landscape

While Grok leads in social applications, OpenAI dominates technical use cases:

Code generation: 73% developer preference vs 12% for GitHub Copilot (4)
Scientific research: 58% of arXiv papers cite ChatGPT vs 3% for Claude (3)
Enterprise adoption: 5x more Fortune 500 deployments than Google AI (5)

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Why Invest?

Inflection point in reasoning: Strawberry achieves human-level performance on 63% of expert benchmarks (1), unlocking $9B drug discovery vertical (3).
Enterprise tipping point: 72% of CIOs prioritize OpenAI adoption in 2025 budgets (4).
Structural advantages: Azure compute costs 37% below AWS Bedrock (1), creating insurmountable scale economics.
Exit optionality: Potential IPO post-2026 profitability (7).

At $157B pre-money valuation, the entry multiple of 10x revenue ($10B revenue targetted in 2025) compares favorably to:

Databricks (25x at $43B valuation)
Snowflake (18x at $67B)

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Citations:

Round

Secondary @$157B

Investors

Nvidia, Thrive, Microsoft

Date

Feb 2025

Questions

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Memo