OpenAI turmoil is a bad look for its huge funding round, VCs say. 'I would vote with my feet.'

• OpenAI is said to be closing a funding round that could value the company at as much as $150 billion.
• At the same time, the company saw yet another round of departures among its top leadership.
• The company is also reportedly looking to transform its core business into a for-profit benefit corporation.

At OpenAI, leadership shake ups are becoming something of an autumnal tradition. Less than a year after the ousting and rapid reinstatement of CEO Sam Altman, the company behind ChatGPT has seen three of its top leaders resign suddenly in the same week it moves to close what could be the largest funding round in the history of Silicon Valley.

It came out this week that CTO Mira Murati, Chief Research Officer Bob McGrew, and VP of Research for Post Training Barret Zoph will leave the company. It was a shocking about-face for three of the most prominent leaders of OpenAI's technical staff.  

Murati's resignation came the same day Reuters reported that OpenAI is working to transform its corporate structure in order to become a for-profit benefit corporation no longer under the control of the company's non-profit arm.

Murati's departure follows cofounder John Schulman's announcement in August that he would be leaving OpenAI to work at rival Anthropic.

Meanwhile, investors including Nvidia, Apple, and UAE-backed investment fund MGX are reported to be putting the finishing touches on a $6.5 billion funding deal that could value OpenAI at as much as $150 billion.

Some investors have questioned whether the near-constant power struggles and purges within OpenAI's inner circle will disrupt its ascendancy to become one of the most valuable private companies in the world.

"OpenAI is the hottest deal in venture capital history," said Joe Aaron, founding partner at TRAC. But, Aaron said, investors in OpenAI, such as Thrive Capital's Josh Kushner, should be wary of a company that's become so synonymous with corporate turmoil.

"Kushner is betting the ranch on OpenAI and Sam Altman just as Masa Son pledged 40% of his Vision Fund on Yahoo and Jerry Yang. The difference was Jerry Yang wasn't fired, brought back as CEO, only to have his most senior people bail. Reputations are on the line. I would vote with my feet." 

Skepticism over returns

Others in Silicon Valley have also expressed skepticism about whether OpenAI's rising star can survive its painful transition from a scrappy research outfit to a global corporation.

"The fastest way for a startup to die is because of emotional turmoil and land grab wars within the company," said one venture investor, speaking on condition of anonymity. "OpenAI has a huge technological moat, but the thing is, there are companies like Anthropic that are snapping at their heels," she added, "they're ahead of everyone, but I think this kind of raises the concern that they'll squander that advantage."

"In a typical financing, a potential investor would rethink their investment if so many folks from the management team left right before the financing closed. However, OpenAI is not a typical company," said Jai Das, president and a partner at Sapphire Ventures. He described the startup as "almost synonymous" with generative AI — a category that, according to a June estimate by Goldman Sachs, could attract $1 trillion in spending from tech companies in the coming years.

But Das, who's seen 14 of his investments go public, including JFrog, Square, and Block, expressed some skepticism about OpenAI's ability to provide meaningful returns for investors. Another early-stage tech investor said that beyond the palace intrigue, a bigger question is how the company can justify being worth as much as Goldman Sachs with a core business that's burning through cash. According to a recent report in The Information, OpenAI could lose as much as $5 billion in this year alone.

"They need to believe this will eventually generate enormous cash flow in one of the most capital-intensive and competitive arms races I've seen in a while," he said, asking not to be named. "You add the drama to it and yeah, makes it hard to swallow and see how one delivers that return."

BI spoke to a growth-stage investor focused on software who said she cares very much about the internal goings-on of a prospective investment. OpenAI has a technological moat, sure. Sales are growing. But a company's advantage begs the question of how it might squander it, this investor said. She suspects the defections at the top may lead others to leave the company.

"The top management team has themselves said that people are everything at OpenAI," this investor said. In the days after the board fired Altman, employees tweeted, "OpenAI is nothing without its people," which some took as a threat that they would follow Altman out the door.

"The reason they have this moat is because they've had the best technical talent and an ability to recruit the best technical talent," said the investor, who spoke confidentially. "For me, the question is really how does it impact their ability to hire and retain the best people in the field?"

'In Sam Altman, we trust'

Even still, some investors said the departures and other drama dogging the company are incidental. OpenAI is at the forefront of the generative AI business, and business is booming. In June, according to a report in The Information, the company was on pace to bring in about $3.4 billion in revenue this year, roughly triple its annualized revenue last summer.

"First, OpenAI is on a path to becoming one of the most important tech companies of all time," said a seasoned startup executive and angel investor, who spoke on condition of anonymity, in an email. "Second, Sam Altman has proven himself to be one of the greatest tech founders of this generation. "Everything else is secondary to 1 and 2."

For those doubling down on OpenAI, the questions of dollars and cents may ultimately be secondary to a larger vision for how AI will reshape society. Sam Altman has said that AI superintelligence could be a reality within "a few thousand days." If that turns out to be true, the squabbling inside OpenAI's c-suite will likely be the last thing on any investor's mind.

"Turmoil is temporary. Changing the world is eternal," said Ben Narasin, founder of Tenacity Venture Capital. "The short term drama will not get in the way of folks investing in what is likely the most transformative engine of the future since the internet." For some, the departure of the more altruistic wing of OpenAI's management team may even end up being more a feature than a bug

"Investors are probably happy, they're like look, we don't want a nonprofit, we don't invest in nonprofits," said one venture investor, speaking on the condition of anonymity. They said that while OpenAI's research prowess may have been a competitive advantage in the early days of the AI arms race, the future of the industry will likely be determined not by who can build the best AI model but by who can build the best operating model.

"It's gonna sound really messed up, but like, you don't need the most brilliant co-founders around the table right now, you need people that are gonna execute, and they're hiring those people, they're paying them a shit ton of money, so they're getting great talent," said the investor.

The investor added that the departure of OpenAI's other co-founders is probably of middling importance to investors, who are currently fundamentally betting on Sam Altman and his grand vision for a brave new AI-powered world.

"Everybody wants Sam Altman at the helm, and they're willing to do anything to keep him as the CEO. They're like in God we trust, in Sam Altman we trust," the investor said.