OpenAI is growing rapidly and is consuming heaps of money

OpenAI, the San Francisco startup behind ChatGPT, has told investors that it is making billions from its chatbot, and that it expects to make even more in the coming years. But it was not entirely clear the extent of the loss.

OpenAI’s monthly revenue reached $300 million in August, up 1,700 percent since the start of 2023, and the company expects annual sales of about $3.7 billion this year, according to financial documents reviewed by The New York Times. OpenAI estimates its revenue will rise to $11.6 billion next year.

But it expects to lose nearly $5 billion this year after paying costs related to operating its services and other expenses such as employee salaries and office rent, according to an analysis by a financial professional who also reviewed the documents. These numbers do not include equity-based compensation paid to employees, among many other large expenses that are not fully explained in the documents.

OpenAI has distributed documents to potential investors for an investment round that could bring in $7 billion and values ​​the company at $150 billion, among the highest ever for a private technology company. The round, which could close as early as next week, comes at a critical time for OpenAI, which is growing rapidly but has lost a number of important executives and researchers in the past few months.

The documents provide the first detailed look at OpenAI’s financial performance and how it presents itself to investors, but they do not explain precisely how much money it is losing. Fundraising materials also indicated that OpenAI will need to continue raising money over the next year as its expenses have grown along with the number of people using its products.

OpenAI declined to comment on the documents.

OpenAI’s revenue in August more than tripled from a year earlier, according to documents, and about 350 million people — up from about 100 million in March — used its services monthly as of June.

Most of that came from the continued popularity of ChatGPT, which was released in November 2022. Documents show a significant spike in growth after ChatGPT He started Allow people to use the service without creating an account or logging in. The company expects ChatGPT to generate $2.7 billion in revenue this year, up from $700 million in 2023, with $1 billion coming from other companies using its technology.

Nearly 10 million ChatGPT users pay the company a monthly fee of $20, according to the documents. OpenAI expects to raise that price by $2 by the end of the year, and will aggressively raise it to $44 over the next five years, the documents said. More than a million third-party developers use OpenAI technology to power their own services.

OpenAI expects its revenue to reach $100 billion in 2029, which is roughly in line with current annual sales of Nestlé or Target.

Like other high-profile tech startups in the past few decades, OpenAI is struggling to get its costs under control.

Its biggest cost is the computing power it gets through a partnership with Microsoft, which is also the lead investor in OpenAI. Microsoft has pumped more than $13 billion into the San Francisco company. But OpenAI spends much of that money on Microsoft’s cloud computing systems, which host OpenAI’s products.

In addition to Thrive Capital, the lead investor in the new round, OpenAI is in talks with Microsoft, Apple, Nvidia, Tiger Global and MGX, a technology investment firm controlled by the United Arab Emirates, according to three people familiar with the discussions.

OpenAI offers unusual deal structures for investors. Thrive Capital invested $750 million in OpenAI’s latest round of funding, according to a person familiar with the deal. In addition to investing its own money, the company plans to use a financial vehicle called a special purpose vehicle to raise an additional $450 million from other investors, the source said.

As the lead investor in the deal, Thrive also has an unusual advantage: the option to invest up to an additional $1 billion in OpenAI at the same $150 billion valuation through 2025, according to the documents. That could be lucrative for Thrive given how quickly OpenAI’s valuation has risen to $150 billion, compared to just $30 billion a year ago.

None of OpenAI’s other investors were given the same terms, and some of them were frustrated by the special preference, according to two people familiar with those discussions.

(The Times sued OpenAI and Microsoft in December for copyright infringement on news content related to AI systems.)

OpenAI deal discussions may be affected by three high-profile departures from the company this week. On Wednesday evening, its chief technology officer, Mira Moratti, resigned, and Bob McGraw, its chief research officer, and Barrett Zoff, its vice president of research, soon resigned.

The funding discussions also come as OpenAI works to restructure itself into a for-profit company. Sam Altman, the company’s current CEO, technology leader Elon Musk and several other technologists founded the AI ​​Research Lab in late 2015 as a non-profit organization, and its board of directors still maintains control of the company’s operations.

But in 2018, after Mr. Musk and his bankroll left, Mr. Altman spun the operation into a so-called dividend company so he could raise the billions of dollars needed to build artificial intelligence. This organization provided a return to investors, but a ceiling was set on these profits. It is governed by a non-profit board of directors that is not responsive to investors.

As part of the investment round, OpenAI has two years to turn into a for-profit company, or its funding will turn into debt, according to deal documents.

Kid Metz He contributed reporting from New York.