Editing OpenAI Inc (section)

== Deal Rationale ==
As of the writing of this report no financial data has been made available to the general public. The only indication of OpenAI's value is the investment size made to OpenAI by various Venture Capital firms (including Sequoia Capital, Andreessen Horowitz, Thrive and K2 Global) and large technology conglomerates (including Microsoft). The venture capital firms have invested just over $300 million and Microsoft has invested $10 billion. This gives OpenAI a valuation of $28 billion dollars. The venture capital firm's aims seem transparent enough however, microsoft's investment in OpenAI is much more nuanced (explored more in the next section).<ref>https://techcrunch.com/2023/04/28/openai-funding-valuation-chatgpt/</ref>

'''Microsoft's Investment Rationale'''

* To supercharge its supercomputing division through vertical integration.

With ChatGPT running on the Microsoft Azure cloud system, the demand for Azure to have supercomputing capabilities will increase allowing Microsoft to 'future-proof' its cloud infrastructure. Azure in its current state was slated by reviews for its high cost and average performance. With the ChatGPT model running on the Azure cloud system, Microsoft will be able to hone their AI computing abilities and make the Microsoft Azure solution more reputable and capable (in terms of performance), not just for small scale cloud services but large and high complexity cloud services.  

* To increase the competitiveness of Bing through vertical integration.

Microsoft's search engine Bing has long been inferior to Google's dominance over the market. However, Microsoft aims to supercharge Bing with the general intelligence power that ChatGPT has been known for. As recently as of March, Microsoft have confirmed this with the ChatGPT 4.0 model having successfully run Bing for its preview customers in March.<ref>https://techcrunch.com/2023/03/14/microsofts-new-bing-was-using-gpt-4-all-along/</ref>

* To stabilise Microsoft Azure's revenue.

With the lukewarm reviews Microsoft azure received, its revenue may not have been assured (as higher-demand clients choose fancier cloud solutions).<ref>https://uk.pcmag.com/cloud-services/73781/microsoft-azure</ref> Microsoft's large investment in OpenAI assures Azure to be the exclusive cloud platform for all of OpenAI's services, bring consistent revenue to a new and turbulent sector.

* OpenAI is the safe option.

When Microsoft announced it $10 billion investment in OpenAI, it did so at a time of uncertainty in the market. High inflation and interest rates left the M&A market subdued pushing companies towards safer investments.<ref>https://www.pwc.com/gx/en/services/deals/trends.html</ref> Considering Microsoft's initial investment of $1 billion into OpenAI in 2019, along with the success of its launch in November 2022 , the $10 billion investment seems like a very safe bet.

'''Capital Structure'''

While the exact information is not open to the public, a person familiar with the discussion said that the $10 billion dollar investment expected to be paid in cash instalments over a multi-year period. <ref>https://www.bloomberg.com/news/articles/2023-01-23/microsoft-makes-multibillion-dollar-investment-in-openai</ref>

'''Precedent Transactions comparable to OpenAI'''
{| class="wikitable"
|'''Acquirer  Name'''
|'''Target Name'''
|'''Date'''
|'''Offer Value (in millions USD)'''
|-
|Google
|Deepmind technologies
|2014-01-26
|$ 500.00
|-
|Sales  force
|Tableau
|2019-08-01
|$ 15,700.00
|-
|Broadcom 
|Symantec Enterprise Security  Business 
|2019-11-04
|$10,000.00
|-
|Prosus 
|Just Eat
|2019-11-11
|$ 7,800.00
|-
|Microsoft
|Zenimax media (bethesda)
|2021-03-09
|$ 7,500.00
|-
|Microsoft
|Linkedin
|2016-12-08
|$26,200.00
|-
|Microsoft 
|Nuance Communications
|2023-03-01
|$19,700.00
|-
|AMD
|Xilinx
|2020-10-01
|$49,000.00
|}
With OpenAI having an approximate valuation of $30 billion dollars based on a $300 million dollar share sale, the table above shows a list of comparable transactions in the TMT sector. The closest company in the table to OpenAI would be Deepmind which only achieved a valuation of $500 million. However, this was at a time when the limits and capabilities of AI weren't known.