OpenAI's new fund raising is shaking up Silicon Valley

Generative AI is forcing America's disrupters-in-chief to think differently.

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A rare beast may soon lumber across the hills of Silicon Valley: Not a US$1 billion (S$1.3 billion) unicorn, nor a US$10 billion decacorn, but a hectocorn - a start-up valued at more than US$100 billion.

OpenAI, the maker of ChatGPT, is understood to be in talks to raise US$6.5 billion from investors to fund the expansion dreams of its co-founder, Mr Sam Altman. If it pulls off the deal, OpenAI's valuation will be about US$150 billion, making it only the second-ever US$100 billion-plus start-up in America after SpaceX, a rocketry giant led by Mr 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 start-up 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. According to PitchBook, a data gatherer, the average size of a VC fund raised in America in 2023 was about US$150 million. OpenAI is looking to collect more than 40 times that from investors.