OpenAI, Anthropic valuation cuts spark startup slump fears

The two companies at the center of the AI boom have both lowered their price expectations within weeks of each other. Venture investors now worry that private startup valuations are close to a correction. OpenAI cut its target valuation to $1.25 trillion from $1.4 trillion and reduced its funding goal by a third after some investors pushed back on its terms. Anthropic is seeking a public listing at a fully diluted valuation of up to $1.4 trillion, well below the roughly $2 trillion some bankers had once expected, Bloomberg reported on November 11.bloomberg.com

Bloomberg said the scaled-back deals "sent shockwaves throughout the venture landscape," which was already shaken by a weeks-long selloff in public AI stocks. Bloomberg Intelligence data showed the two companies were on pace to take in more than a third of all startup capital invested worldwide this year.bloomberg.com

Smaller rounds, lower ranges

OpenAI has closed the first $11 billion of a round that could reach $20 billion. It had originally sought $30 billion or more, and its last valuation was $852 billion from a March round. Anthropic's updated filing offers 825 million shares at $70 to $78 each, which could raise as much as $64.35 billion. Shares are expected to start trading on the Nasdaq ↘ 0.31% on November 19, and Anthropic will raise another $26 billion from cornerstone investors, including Alphabet's ↗ 2.00% Google, Nvidia ↗ 2.87% and Advanced Micro Devices ↗ 7.32%. Jeff Zell of IPO Boutique said pricing below market expectations "allows investors to 'bid up' the IPO".money.usnews.com+2

There is still some optimism. CoreWeave ↗ 24.71% reported upbeat earnings, and Anthropic's bankers are reportedly considering raising the IPO valuation to $1.5 trillion or more.bloomberg.com

Investors tighten terms

Tomasz Tunguz of Theory Ventures said he started seeing more conservative revenue multiples in AI funding talks only within the past two weeks. B Capital's Howard Morgan said he is telling startups their targets are "too high given your current revenues," which in some cases are still zero. Other pressures have built up as well, according to Bloomberg. These include the possibility of higher interest rates, a scandal at Nvidia, and the Democratic midterm sweep, which could make building data centers harder.bloomberg.com

All eyes on the IPO

Sapphire Ventures' Jai Das said many startups are waiting until Anthropic lists before moving ahead with their own deals. "Anthropic going public is almost like a whole ecosystem going public," he said, and warned that if the listing goes badly, "some companies are going to go out of business". Inspired Capital's Alexa von Tobel is telling founders not to put off raising money. "In moments where you can see a sizable correction or a medium correction, cash is king," she said.bloomberg.com