To provide some context, $150 billion is approximately what the entire U.S. venture capital industry had under management in 1999 to fuel the internet bubble. Just ten years ago, the states of New York, Texas and Florida raised about $6.5 billion—combined.
These eye-popping numbers beg a natural question—are Open AI’s investors (which included tech stalwarts such as Microsoft) putting ambition and optimism over financial fundamentals?
The answer will unfold in the years to come, but Open AI clearly must reach stratospheric levels of growth to deliver a positive economic return to these investors. Despite reportedly suffering a burn rate of $5 billion a year, the current valuation of Open AI at $157 billion puts it in line with foundational economic titans such as Goldman Sachs ($155 billion), HSBC ($165 billion) and Pfizer ($162 billion) and eclipses those such as Starbucks ($109 billion) and Boeing and Airbus ($105 billion).
According to reports, Open AI hit $300 million in revenue in August, up 1,700 percent since the beginning of 2023. It projects $3.7 billion in annual sales this year and is projecting its revenue will skyrocket to $11.6 billion next year. By 2029, it hopes to reach revenue of $100 billion, roughly matching the current annual sales of Nestlé or Target.
Open AI, with all its potential, is also an outlier in that its record fundraise comes at a rather sluggish time for IPOs and acquisitions. This has led some venture capital firms to pivot toward early-stage companies with more runway for growth.
For example, CRV, a Silicon Valley-based venture capital firm, plans to return $275 million from its $500 million Select fund, designed to back more mature start-ups. The reasoning: “the valuations for start-ups are too high relative to their potential for a payoff.” CRV estimates that many start-ups would need to wind up being worth $10 billion or more to be wise investments. “The data just doesn’t support that,” said Saar Gur, a partner CRV. “There aren’t many really big foundational companies and big outcomes.”
Maybe not—but where ambition meets optimism, dreams are created. Now, with the pressure on, Open AI must deliver a fairytale ending to avoid a potential nightmare for its investors.
The answer will unfold in the years to come, but Open AI clearly must reach stratospheric levels of growth to deliver a positive economic return to these investors. Despite reportedly suffering a burn rate of $5 billion a year, the current valuation of Open AI at $157 billion puts it in line with foundational economic titans such as Goldman Sachs ($155 billion), HSBC ($165 billion) and Pfizer ($162 billion) and eclipses those such as Starbucks ($109 billion) and Boeing and Airbus ($105 billion).
According to reports, Open AI hit $300 million in revenue in August, up 1,700 percent since the beginning of 2023. It projects $3.7 billion in annual sales this year and is projecting its revenue will skyrocket to $11.6 billion next year. By 2029, it hopes to reach revenue of $100 billion, roughly matching the current annual sales of Nestlé or Target.
Open AI, with all its potential, is also an outlier in that its record fundraise comes at a rather sluggish time for IPOs and acquisitions. This has led some venture capital firms to pivot toward early-stage companies with more runway for growth.
For example, CRV, a Silicon Valley-based venture capital firm, plans to return $275 million from its $500 million Select fund, designed to back more mature start-ups. The reasoning: “the valuations for start-ups are too high relative to their potential for a payoff.” CRV estimates that many start-ups would need to wind up being worth $10 billion or more to be wise investments. “The data just doesn’t support that,” said Saar Gur, a partner CRV. “There aren’t many really big foundational companies and big outcomes.”
Maybe not—but where ambition meets optimism, dreams are created. Now, with the pressure on, Open AI must deliver a fairytale ending to avoid a potential nightmare for its investors.
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