OpenAI’s new fundraising is shaking up Silicon Valley

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Subscribe to enjoy similar stories. A rare beast may soon lumber across the hills of Silicon Valley: not a $1bn unicorn, nor a $10bn decacorn, but a hectocorn—a startup valued at more than $100bn. OpenAI, the maker of ChatGPT, is understood to be in talks to raise $6.5bn from investors to fund the expansion dreams of its co-founder, Sam Altman.

If it pulls off the deal, OpenAI’s valuation will be about $150bn, making it only the second ever $100bn-plus startup in America after SpaceX, a rocketry giant led by Elon Musk (who co-founded OpenAI in 2015 and is now Mr Altman’s nemesis). All this makes OpenAI sound like a typical tech sensation: a sizzling startup reliant on intrepid investors to develop a new way of doing things that it hopes will change the world. Think Google, Facebook or Uber.

Yet its significance goes further than that. Generative artificial intelligence (AI), the technology on which OpenAI is built, is changing the rules of the game in Silicon Valley itself. There are three big challenges posed by the new technology: many venture-capital (VC) stalwarts cannot afford the huge sums of money that firms like OpenAI need to train and run generative-AI models; the technology scales in different ways than they are used to; and it may rely on unfamiliar approaches to making money.

In short, generative AI is bringing disruption to the home of America’s disrupters-in-chief. Enjoy the Schadenfreude. The first shock for venture capitalists is the size of the cheques required to fund the builders of large language models (LLMs) like those powering ChatGPT.