OpenAI lures private-equity firms with high returns amid Anthropic rivalry
What's the story
OpenAI, the company behind ChatGPT, is sweetening its pitch to private equity firms by offering a guaranteed minimum return of 17.5%, according to Reuters. The offer is significantly higher than the usual preferred instruments offered in such deals. The AI giant is also giving early access to its latest AI models as part of its strategy to attract investors like TPG and Advent for a joint venture (JV).
Market strategy
OpenAI's aggressive push into enterprise sector
OpenAI has recently intensified its focus on the enterprise sector, an area where its competitor Anthropic has traditionally been more dominant. Unlike Anthropic's enterprise-focused private equity deal, which didn't offer such returns, OpenAI is aggressively courting buyout firms for partnerships. These alliances would enable them to quickly deploy their AI tools to hundreds of established private companies owned by buyout firms.
Financial relief
JVs could ease financial pressures ahead of potential IPOs
The joint venture structure could help absorb high upfront costs related to deploying engineers for client model customization. This would ease financial pressures on OpenAI and Anthropic ahead of their potential public listings. It would also provide clearer segment reporting, which can support the IPO narrative. However, some private equity firms have opted out of these joint ventures over concerns about economics, flexibility, and profit profile.
Investor skepticism
Concerns raised by private equity investors about partnership value
Several private equity investors have questioned the value of these partnerships, arguing that large firms already have direct access to OpenAI and Anthropic without capital commitments. They also say these partnerships are a response to pressure from their own investors to show a clearer strategy around AI. Some firms are still in talks with OpenAI and Anthropic about joining the joint ventures but many are expected to take smaller stakes without board seats or lead roles.
Investment discussions
Ongoing talks between AI companies and private equity firms
Reuters had previously reported that OpenAI is in advanced talks with firms such as TPG, Bain Capital, Advent International, and Brookfield Asset Management. The company is looking to raise around $4 billion at a pre-money valuation of about $10 billion. Anthropic, another player in the AI space, is also pursuing a similar strategy and has been courting private equity firms like Blackstone, Hellman & Friedman, and Permira for its own enterprise-focused venture.