Around 600 OpenAI employees cashed out a total of $6.6 billion through a tender offer for existing shares last October, according to the latest market news. This transaction pushed the valuation of OpenAI, which was not yet listed at the time, to $500 billion.
TL;DR
- OpenAI employees cashed out $6.6B before IPO at $500B valuation, 75 hit $30M cap.
- OpenAI's valuation has since soared to $852B, and it has secretly submitted its IPO application.
- This practice of 'cashing out before listing' is both a defensive move against tech giants and a way to meet the entry demand of investors.
What happened
In October, around 600 OpenAI employees collectively cashed out a staggering $6.6 billion through a tender offer for existing shares. This transaction pushed the valuation of OpenAI, which was not yet listed at the time, to $500 billion. Today, OpenAI's valuation has soared to $852 billion, and it has secretly submitted its IPO application.
OpenAI stipulates that employees must hold their shares for at least two years to be eligible for selling. This clause has drawn a cruel wealth gap inside the company. Those 'veterans' who joined before ChatGPT went viral in November 2022 have reaped the biggest dividends from this wave. They hold options with extremely low exercise prices, which under the valuation of $500 billion or even $852 billion US dollars, have turned into pure money printers.
In order to appease those who missed the opportunity, OpenAI has to pay extremely high cash compensation in addition to regular salaries, or promise to give preferential treatment in future new tender offers. But the leverage effect of cash and options can never be equated.
Why it matters
This practice of 'cashing out before listing' is both a defensive move against tech giants and a way to meet the entry demand of investors. Starting from 2024, companies including Meta have poached AI talents in an almost frantic way, even offering sky-high compensation packages worth hundreds of millions of US dollars. Allowing employees to feel the reality of 'winning' in advance through the transfer of old shares is the most effective way to retain them.
Top-tier capitals such as Thrive Capital and SoftBank have huge amounts of money that they want to pour into OpenAI's shares. Since the company does not need to raise money from the public market through an IPO for now, it can take the shares of old shareholders out and transfer them to these investors. This not only meets the entry demand of investors, but also solves the liquidity demand of employees.
From 500 billion to 852 billion, in less than a year, OpenAI's valuation has increased by more than 70%. This is an extremely crazy pricing. If it goes public at a valuation of 852 billion US dollars, it will directly rank among the companies with the largest market capitalization in the US stock market. However, what supports this trillion-dollar dream is extremely high computing power costs and a business model that has not yet been fully closed-loop.
Key facts
- Around 600 OpenAI employees cashed out a total of $6.6 billion through a tender offer for existing shares last October.
- This transaction pushed the valuation of OpenAI, which was not yet listed at the time, to $500 billion.
- Today, OpenAI's valuation has soared to $852 billion, and it has secretly submitted its IPO application.
- Around 75 employees directly hit the $30 million sales cap; the remaining 525 people cashed out an average of around $8.3 million each.
- OpenAI stipulates that employees must hold their shares for at least two years to be eligible for selling.
- Those 'veterans' who joined before ChatGPT went viral in November 2022 have reaped the biggest dividends from this wave.
- OpenAI has to pay extremely high cash compensation in addition to regular salaries, or promise to give preferential treatment in future new tender offers to appease those who missed the opportunity.
- Top-tier capitals such as Thrive Capital and SoftBank have huge amounts of money that they want to pour into OpenAI's shares.
Context
Throughout Silicon Valley's history, the myth of generating massive wealth has long followed a fixed script: a company starts out in a garage, goes through years of losses, and finally rings the listing bell on Nasdaq. Then, as its stock price skyrockets, hundreds of early employees turn into 'paper millionaires' overnight. But in the AI era, this script has been torn apart.
In the logic of the traditional capital market, founders usually try their best to prevent employees from cashing out on a large scale before IPO. The reason is simple: if the core team has all achieved financial freedom, who would be willing to keep working 996 with all their might in the next few years? But OpenAI broke this convention.
The AI industry is undergoing a subtle shift in mentality. Microsoft and Meta have begun to adjust the pace of capital expenditure, and the market's doubts about AI infrastructure 'burning money without making profits' are growing louder; Anthropic's valuation expectation was lowered from 2 trillion to 1.5 trillion US dollars at its investor day.
