Microsoft is in talks to invest $10 billion in OpenAI, the developer of the wildly popular AI-based chatbot ChatGPT, reports Semafor with reference to people familiar with the negotiation process. The funding, which will also be provided by other venture capital firms, will reportedly value OpenAI at $29 billion.
Microsoft’s infusion will be part of a complex deal that will see the company receive 75% of OpenAI’s profits until it recoups its investment.
Once that threshold is reached, the structure that reflects OpenAI’s ownership will revert: Microsoft will own 49% of the shares, other investors will get another 49%, and OpenAI’s non-profit parent organization will get 2%. There’s also a profit cap that varies for each group of investors — unusual for venture deals that investors hope can return 20 to 30 times their money. The terms and amount of the investment may change and the deal may terminate.
$29 billion is a big price for OpenAI, a company that has yet to define its business model, and $10 billion is a big price for Microsoft shareholders.
But Microsoft’s investment is not a huge gamble. According to Sam Altman, General CEO of OpenAI, every time someone joins his chatbot, it costs the company a few cents in computing power. But it’s also an advantage for Microsoft that the money can go to the company’s cloud business, which is trying to reach parity with rival Amazon Web Services.
If OpenAI figures out how to monetize products like ChatGPT and the Dall-E imaging tool, Microsoft will get 75% of the profits until it recoups its initial investment.
Beyond the financial risks and rewards for Microsoft, the bigger reward is that it’s working with OpenAI to develop technology in the Microsoft Cloud, instantly putting Microsoft at the forefront of what could be the most important consumer technology of the next decade.