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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.
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PREVIOUS MEMO (August 24)
OpenAI has achieved a staggering $3.4B in revenue (May 2024), marking a phenomenal 580% increase year-over-year from $2B at the close of 2023.
Co-investors: Breakdown by round
RECENT UPDATES
COMPANY & PRODUCT
OpenAI, a leading artificial intelligence (AI) research and deployment company, has established itself as a dominant force in the AI industry with its advanced models such as ChatGPT, DALL-E 3, and Codex. The company’s mission to develop artificial general intelligence (AGI) aligned with human values and its ongoing partnerships, notably with Microsoft, enhance its commercial and technological prospects.
Founded in 2015 with the mission of ensuring that artificial general intelligence (AGI) benefits all of humanity. The company is at the forefront of AI development, having created groundbreaking technologies like the ChatGPT language model, DALL-E image generation system, and GPT-4 large language model.
TRACTION
In May 2024, OpenAI achieved a staggering $3.4 billion in annual recurring revenue (ARR), marking a phenomenal 580% increase year-over-year from $2 billion at the close of 2023. This meteoric rise underscores the company's extraordinary growth and dominance in the AI sector.
In 2022, the company reported a loss of $540 million, a figure that was expected to escalate dramatically in 2023 due to the soaring popularity of its consumer tools. CEO Sam Altman has remarked that OpenAI is poised to become “the most capital-intensive startup in Silicon Valley history,” driven by the costs associated with running ChatGPT. For instance, operating ChatGPT incurs daily expenses of approximately $700,000, considering the immense GPU hours and hardware requirements.
Revenue Growth: OpenAI's annualised revenue reached $3.4 billion in May 2024, reflecting significant growth as the company continues to expand its offerings and user base
Revenue Streams:
Product Evolution
Founded in December 2015, OpenAI began as a non-profit with a mission to advance “safe” artificial intelligence. The pioneering team included notable figures such as Sam Altman, Elon Musk, Greg Brockman, and Jessica Livingston.
The company’s first major products, released in 2016, were “Gym” a platform for reinforcement learning research and “Universe”, designed to evaluate the intelligence of AI agents through video games and other tasks. In 2018, OpenAI introduced the Generative Pre-trained Transformer (GPT) and, shortly after, transitioned from its initial non-profit model to a “capped” for-profit structure. This shift aimed to attract venture capital and talent while maintaining its commitment to transparency.
Today, OpenAI boasts an expansive suite of products, including GPT-3 and GPT-4 APIs, Whisper, DALL-E, and ChatGPT each leading the charge in AI-based text, image, and audio generation.
ChatGPT Phenomenon
In 2015, Magic experienced a surge in product-market fit with a text-based assistant that struggled to scale due to its reliance on human labour. A similar pattern of demand re-emerged with ChatGPT, which offers a cost-effective alternative to expensive human-powered services.
The efficiency of ChatGPT, available for less than $20 per month—contrasts sharply with the $5 per hour cost of overseas labour, making it an invaluable tool for millions of daily users seeking assistance with code generation, research, Q&A, therapy, and more.
ChatGPT Plugins, OpenAI’s third-party app store, extends its capabilities by integrating with various applications like Zapier. For example, users can instruct ChatGPT to find and display their latest email from Gmail directly within the chat interface.
COMPETITION
OpenAI faces competition from several players:
MARKET
As a forerunner in the field of AI, OpenAI is strategically positioned to capture a significant portion of the rapidly expanding generative AI market, projected to grow from $40 billion in 2022 to $1.3 trillion by 2032.
OpenAI’s long-term goal is to develop the most capable artificial intelligence that is safe and aligned with human values. While it’s challenging to predict the long-term potential and value of an emerging technology like artificial intelligence, we can already make some predictions about how OpenAI might be valuable in the future based on changes that are happening now.
For example, OpenAI has triggered and is benefiting from shifts in how work is done across the B2B world—and as more and more spend moves towards AI-enabled software, OpenAI stands to become an AWS-like tax on the entire ecosystem.
Where card issuing enabled new, digital workflows that form the basis of Ramp and Brex’s disruption of American Express, the next wave of disruption built on LLMs will automate away the human labour and judgement built into those workflows.
Rather than humans uploading receipts and filling out forms, AI will pre-classify transactions once they’re made and merely prompt a human to confirm—changing the finance manager’s role from pilot to auto-pilot monitor.
Finance work moving from humans to autonomous AI agents portends a shift from seats in payroll in Rippling towards spend on tokens and SaaS in tools like Ramp and Brex—ultimately benefiting OpenAI who can take a tax on the entire ecosystem.
Potential Flywheel Effect
OpenAI’s $100 million startup fund invests in AI startups that leverage OpenAI’s models. This fund creates a self-reinforcing cycle that accelerates AI development and generates additional revenue for OpenAI, further embedding it into the AI ecosystem.
Future Prospects
STRUCTURE
The sky-high number of training and deploying models like GPT-4 helps explain the unusual terms of Microsoft’s roughly $13B of investment in OpenAI over the last few years.
OpenAI’s hybrid corporate structure, with both a for-profit business wing and a non-profit research lab wing, determines how investors in the company will eventually be paid out. A wrinkle in the for-profit wing of the business is that profits are capped: OpenAI’s earliest investors and employees are limited to making 100x their initial investment. The combined organisation is run by OpenAI’s non-profit arm.
Once the for-profit business arm begins to return profits, the first people to get paid out will be the very earliest investors in the company, who will get their principal paid back.
After those early investors are paid out their principal, 25% of OpenAI’s profits will go to employees and to pay early investors (until they hit their profit cap), while 75% will go to Microsoft until it recoups its $13B principal.
After Microsoft recoups its $13B, it will get 50% of all OpenAI profits until it gets to $92B (at which point they’ll hit the profit cap), while 49% will go to early investors and employees and 2% will go to OpenAI’s non-profit arm.
Once $92B in profit is generated and paid to Microsoft—along with that $13B in principal—all equity reverts back to OpenAI, along with 100% of future profits.
This structure operates like a hedge—for OpenAI, it is a way to make sure that the company has the capital and institutional backing that it needs to survive in the short-term given that the profit-making capacity of the company is still unproven, with a large long-term reward in the event that they’re successful in making it work.
RISKS
PRESS
Memo
DEAL
LATEST INFO
LATEST ARTICLES
PREVIOUS MEMO (August 24)
OpenAI has achieved a staggering $3.4B in revenue (May 2024), marking a phenomenal 580% increase year-over-year from $2B at the close of 2023.
Co-investors: Breakdown by round
RECENT UPDATES
COMPANY & PRODUCT
OpenAI, a leading artificial intelligence (AI) research and deployment company, has established itself as a dominant force in the AI industry with its advanced models such as ChatGPT, DALL-E 3, and Codex. The company’s mission to develop artificial general intelligence (AGI) aligned with human values and its ongoing partnerships, notably with Microsoft, enhance its commercial and technological prospects.
Founded in 2015 with the mission of ensuring that artificial general intelligence (AGI) benefits all of humanity. The company is at the forefront of AI development, having created groundbreaking technologies like the ChatGPT language model, DALL-E image generation system, and GPT-4 large language model.
TRACTION
In May 2024, OpenAI achieved a staggering $3.4 billion in annual recurring revenue (ARR), marking a phenomenal 580% increase year-over-year from $2 billion at the close of 2023. This meteoric rise underscores the company's extraordinary growth and dominance in the AI sector.
In 2022, the company reported a loss of $540 million, a figure that was expected to escalate dramatically in 2023 due to the soaring popularity of its consumer tools. CEO Sam Altman has remarked that OpenAI is poised to become “the most capital-intensive startup in Silicon Valley history,” driven by the costs associated with running ChatGPT. For instance, operating ChatGPT incurs daily expenses of approximately $700,000, considering the immense GPU hours and hardware requirements.
Revenue Growth: OpenAI's annualised revenue reached $3.4 billion in May 2024, reflecting significant growth as the company continues to expand its offerings and user base
Revenue Streams:
Product Evolution
Founded in December 2015, OpenAI began as a non-profit with a mission to advance “safe” artificial intelligence. The pioneering team included notable figures such as Sam Altman, Elon Musk, Greg Brockman, and Jessica Livingston.
The company’s first major products, released in 2016, were “Gym” a platform for reinforcement learning research and “Universe”, designed to evaluate the intelligence of AI agents through video games and other tasks. In 2018, OpenAI introduced the Generative Pre-trained Transformer (GPT) and, shortly after, transitioned from its initial non-profit model to a “capped” for-profit structure. This shift aimed to attract venture capital and talent while maintaining its commitment to transparency.
Today, OpenAI boasts an expansive suite of products, including GPT-3 and GPT-4 APIs, Whisper, DALL-E, and ChatGPT each leading the charge in AI-based text, image, and audio generation.
ChatGPT Phenomenon
In 2015, Magic experienced a surge in product-market fit with a text-based assistant that struggled to scale due to its reliance on human labour. A similar pattern of demand re-emerged with ChatGPT, which offers a cost-effective alternative to expensive human-powered services.
The efficiency of ChatGPT, available for less than $20 per month—contrasts sharply with the $5 per hour cost of overseas labour, making it an invaluable tool for millions of daily users seeking assistance with code generation, research, Q&A, therapy, and more.
ChatGPT Plugins, OpenAI’s third-party app store, extends its capabilities by integrating with various applications like Zapier. For example, users can instruct ChatGPT to find and display their latest email from Gmail directly within the chat interface.
COMPETITION
OpenAI faces competition from several players:
MARKET
As a forerunner in the field of AI, OpenAI is strategically positioned to capture a significant portion of the rapidly expanding generative AI market, projected to grow from $40 billion in 2022 to $1.3 trillion by 2032.
OpenAI’s long-term goal is to develop the most capable artificial intelligence that is safe and aligned with human values. While it’s challenging to predict the long-term potential and value of an emerging technology like artificial intelligence, we can already make some predictions about how OpenAI might be valuable in the future based on changes that are happening now.
For example, OpenAI has triggered and is benefiting from shifts in how work is done across the B2B world—and as more and more spend moves towards AI-enabled software, OpenAI stands to become an AWS-like tax on the entire ecosystem.
Where card issuing enabled new, digital workflows that form the basis of Ramp and Brex’s disruption of American Express, the next wave of disruption built on LLMs will automate away the human labour and judgement built into those workflows.
Rather than humans uploading receipts and filling out forms, AI will pre-classify transactions once they’re made and merely prompt a human to confirm—changing the finance manager’s role from pilot to auto-pilot monitor.
Finance work moving from humans to autonomous AI agents portends a shift from seats in payroll in Rippling towards spend on tokens and SaaS in tools like Ramp and Brex—ultimately benefiting OpenAI who can take a tax on the entire ecosystem.
Potential Flywheel Effect
OpenAI’s $100 million startup fund invests in AI startups that leverage OpenAI’s models. This fund creates a self-reinforcing cycle that accelerates AI development and generates additional revenue for OpenAI, further embedding it into the AI ecosystem.
Future Prospects
STRUCTURE
The sky-high number of training and deploying models like GPT-4 helps explain the unusual terms of Microsoft’s roughly $13B of investment in OpenAI over the last few years.
OpenAI’s hybrid corporate structure, with both a for-profit business wing and a non-profit research lab wing, determines how investors in the company will eventually be paid out. A wrinkle in the for-profit wing of the business is that profits are capped: OpenAI’s earliest investors and employees are limited to making 100x their initial investment. The combined organisation is run by OpenAI’s non-profit arm.
Once the for-profit business arm begins to return profits, the first people to get paid out will be the very earliest investors in the company, who will get their principal paid back.
After those early investors are paid out their principal, 25% of OpenAI’s profits will go to employees and to pay early investors (until they hit their profit cap), while 75% will go to Microsoft until it recoups its $13B principal.
After Microsoft recoups its $13B, it will get 50% of all OpenAI profits until it gets to $92B (at which point they’ll hit the profit cap), while 49% will go to early investors and employees and 2% will go to OpenAI’s non-profit arm.
Once $92B in profit is generated and paid to Microsoft—along with that $13B in principal—all equity reverts back to OpenAI, along with 100% of future profits.
This structure operates like a hedge—for OpenAI, it is a way to make sure that the company has the capital and institutional backing that it needs to survive in the short-term given that the profit-making capacity of the company is still unproven, with a large long-term reward in the event that they’re successful in making it work.
RISKS
PRESS