Korean institutions eye investment in OpenAI at $40 bn valuation

OpenAI, the world’s most well-known artificial intelligence lab, is tapping South Korean institutional investors for investment at an estimated valuation of up to $40 billion, a whopping $10 billion higher than its rumored valuation during its fundraising of billions of dollars from Microsoft Corp. earlier this year.

According to sources in the investment banking and information technology industries on Wednesday, Korean venture capitalists have started recruiting local institutional investors to invest in OpenAI at an estimated valuation between $35 billion and $40 billion.

The stakes up for grabs are those held by US VCs that in March injected $300 million to buy shares from OpenAI founder Sam Altman at a valuation of about $29 billion, a similar level estimated when Microsoft in January promised an additional $10 billion investment in the most promising AI company in the world.

The US VC giants, including Sequoia Capital, Andreessen Horowitz, Thrive and K2 Global, valued OpenAI at such a high level on expectations that its generative AI model would make the AI lab another tech giant like Meta or Google.

This fledgling AI lab logged an operating loss of $540 million in 2022 on $28 million in revenue.

THE MOST PROMISING TECH FIRM NOW 

OpenAI was founded in 2015 as a non-profit and then changed its structure in 2019.  

Its newly offered valuation is bigger than the 43 trillion won ($32.1 billion) market cap of Korea’s auto giant Hyundai Motor Co., which is also the eighth-largest market cap on the country’s Kospi main bourse.

Despite such a high price tag, Korean institutional investors are keen to grab shares in OpenAI in the absence of attractive investment opportunities amid the global tech startup capital market downturn, according to sources.

Korean investors would be able to cash out on their equity investment in OpenAI three or five years later by selling them to local funds in the US. Other details about the upcoming stake sale such as the size of available stakes are unknown. 

As the startup VC market is grappling with a funding drought after a series of mid-size US bank collapses, the US VCs are also said to be actively seeking capital from Asia’s fourth-largest economy.

OpenAI was founded by Sam Altman, Tesla and SpaceX CEO Elon Musk, Greg Brockman, Ilya Sutskever, Wojciech Zaremba and John Schulman.

The original founding members pledged to invest more than $1 billion in the company but Musk left the company without meeting the investment goal in 2018 due to a conflict of interest after the launch of Tesla’s own generative AI lab.

To fill the void left by Musk, OpenAI has further enhanced its partnership with Microsoft, which committed early this year a new multiyear, multibillion-dollar investment in the company after its previous investments in 2019 and 2021.

ADDITION OF AN APP STORE

The outlook for OpenAI business is bright.

Its text-generative AI model ChatGPT’s subscribers topped 1 million in just five days since its launch last November. It took two and a half months for Instagram and 10 months for Facebook to attract more than 1 million users.

Open AI projected its new paid subscription service, ChatGPT Plus, would earn 1 trillion won in revenue in 2024.

In March it opened an app store platform, dubbed ChatGPT plugins, where OpenAI chatbot users can download plugins developed by outside companies. The users can use ChatGPT plugins via real-time communication with ChatGPT.

The ChatGPT app store is joined by Expedia, FiscalNote, Instacart, KAYAK, Klarna, Milo, OpenTable, Shopify, Wolfram and Zapier. Korean developers Slack and Speak are also its members.

The app store is expected to attract more startups later to become a formidable rival against the current global top two app stores, Apple Inc.’s App Store and Google Play.

Write to Jun-Ho Cha and Jin-Suk Choi at chacha@hankyung.com

Sookyung Seo edited this article.