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Comment by mshake2 | Hacker News Reader

>The AI firm is currently raising funds at a $29 billion valuation.

>The tech-industry giant is ready to pay upwards of $10 billion for the acquisition [49%]

So Microsoft is undervaluing them, and also soaking up 75% of profit until their investment is paid back? Seems like a bad deal.

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It's a complex deal. I think we can assume sama didn't take a bad deal.

This is all clearly just a prelude to Microsoft buying the whole company.

> I think we can assume sama didn't take a bad deal.

Why? Selling a tech company in 2023 vs late 2021 or early 2022 is already guaranteed to get a lower valuation, but why is it safe to assume that Sam Altman didn't take a bad deal?

How do you know for example this wasn't just triggered because Musk needs money? It's very public that he sold a lot of Tesla stock recently and likely can't sell more without tanking it way more, twitter is a money pit, and AFAIK he is an early investor in OpenAI. The deal allows investors to cash out in this sale, so this to me screams "musk pressured everyone into creating a liquidity event".

Firstly, Musks stake probably isn’t big enough for it to materially solve any of his money problems. It’s not even clear he owns any stake- he was a donor at the non profit stage and stepped away in 2019. Secondly, SpaceX is raising funds at a $137Bn valuation and Musk owns a hell of a lot more than that- if he needs cash, that would be a very easy way to get it. Finally, even if Musk was desperate to cash out, that would not explain why the Microsoft deal is buying up so much - they’re clearly doing a deal far bigger than Musks stake. Finally- plenty of people would be desperate to get into OpenAI at this point so if Musk wanted out there are plenty of other ways.

They already invested 1 billion in 2019, I think. So maybe they already own part of OpenAI and $10 billion brings their share up to 49% at a $29 billion valuation. Maybe I am wrong about the details here but these numbers do not mean that Microsoft is undervaluing them.

75% of profit until investment is recouped sounds like a pretty bad deal, though. Not sure it makes sense to hobble a startup's ability to reinvest in themselves at this early of a stage.

I think this is talking about profit, not revenue. You can reinvest [edit: excessive] revenue to not have profit.

they won't leave those 10 billions gathering dust, they are expecting to raise their profit to a point where having 1/4 is more than keeping 1/1 today.

that or they let ChatGPT negotiate the deal.

I suspect in this market the former number was aspirational and the latter number actually materialized. A 66% discount to aspiration is about what all the other high-growth speculative companies took. Maybe they were in a tight spot financially?

Helps when you can limit OpenAI’s inference capacity during negotiations

“Nice tokens ya got there. It’d be a shame if somethin were to happen to em.”

Not sure if this is a joke, or how you think actual commercial partnerships work.

The valuation is rather incredible.

I recall the media buzz around AI back in 2015 (around the same time as OpenAI was founded). It seemed everyone was hyping Canada to be the next "AI Superpower" due to the perceived hostility of the (then next) presidential administration to academics and international talent. Especially companies like Element AI.

Yet, while Element AI fizzled out [0], it seems OpenAI prospered... right here in the Valley!

Smart move by Microsoft.

[0] https://news.ycombinator.com/item?id=25498755

MSFT is literally incentivized to overvalue them

Not really, since they are the ones who will probably end up buying it. Overvaluing it raises the price they'll have to pay for it later.

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