OpenAI has cut the OpenAI funding target by $10 billion to roughly $20 billion, lowering its valuation to $1.25 trillion after a sharp downturn in technology shares dented investor appetite on Friday. The company had initially pitched a $30 billion raise at a $1.4 trillion valuation in September before reducing both figures.
Key points
- OpenAI lowered its fundraising goal from $30 billion to $20 billion at a $1.25 trillion valuation.
- The company has secured roughly $11 billion so far, according to reports.
- Poor quarterly earnings from large tech firms and an upcoming flotation by rival Anthropic contributed to the reduction.
- United Arab Emirates investment vehicle MGX is positioned as the largest backer in the round.
Lower targets and early commitments
The revised figures followed a final commitment deadline that OpenAI set for investors on Friday, the Financial Times reported. The company had initially sought $30 billion at a $1.4 trillion valuation last month before cutting the valuation figure last week.
People familiar with the fundraising told the Wall Street Journal that OpenAI had secured roughly $11 billion so far, leaving it with less than half of its original objective. A first close for the round will likely raise less than $20 billion.
The shortfall prompted the company to adjust its strategy to fill the remaining gap. OpenAI now intends to raise up to $20 billion by bringing in capital from family offices and high-net-worth individuals.
Market jitters hit tech valuations
The shift came during a difficult week for technology companies on Wall Street. Big tech firms reported quarterly results that rattled confidence, driving declines in major equity indices and cooling private market demand for artificial intelligence ventures.
The tech-heavy Nasdaq fell 2.9 per cent on Friday, Reuters reported. The drop left the index 7.8 per cent below the record close it reached on 6 October. Weak quarterly earnings from Intel, Amazon and Alphabet shook market sentiment during the week, with Alphabet shares dropping 12 per cent on Thursday alone.
Institutional investors pulled back allocations across the sector in response to the volatility. That broader retreat directly affected the pricing power of private tech firms, leaving OpenAI unable to secure commitments at its earlier target price.
The race against Anthropic’s public debut
OpenAI also faced pressure from its closest commercial competitor, Anthropic PBC. Anthropic made its initial public offering filing public on Monday and could complete its stock market flotation as early as November.
Anthropic has recently delivered faster revenue growth than OpenAI, according to reporting by The Decoder. A successful market debut could provide Anthropic with more than $100 billion in fresh capital, arming it with substantial reserves to fund research, hire staff and purchase hardware.
Because both companies compete for capital from the same limited group of institutional investors, OpenAI moved to complete its round before Anthropic begins trading on public markets, Reuters reported. OpenAI has worked to protect its commercial position through price reductions on developer software and the release of more compute-efficient models, though the contest between the two companies remains closely balanced.
Sovereign backing and retail access
Despite the smaller round size, several prominent venture firms and sovereign entities agreed to take part. The United Arab Emirates state-backed investment group MGX is set to serve as the largest contributor to the round, the Financial Times reported.
Under the terms of that agreement, OpenAI would secure the option to lease new data centre and computing infrastructure based in the UAE. The arrangement provides the company with physical compute capacity alongside cash investment.
Traditional Silicon Valley venture firms have also signed on to back the round. Founders Fund, Coatue, Sequoia Capital and Andreessen Horowitz plan to invest, according to the Financial Times. High-net-worth individuals and smaller investors will later be permitted to purchase shares through a retail offering pitched at the same $1.25 trillion valuation.
When will OpenAI go public?
The reduction in private funding has brought OpenAI’s public listing plans into sharper focus, though reports differ on the timing of a future float.
The Wall Street Journal reported that OpenAI is preparing for an initial public offering early next year. However, Reuters reported that the company’s internal planning points towards a listing in 2027.
OpenAI, MGX, Coatue, Sequoia and Andreessen Horowitz did not immediately provide comment on the fundraising progress or the revised targets.
