I've been involved in many startups, and this type of fundraising is not common, or at least it wasn't common before a few years or so ago

The whole concept of talking about "runway" is basically calculating how much cash in the bank, that is actually in your bank account, will last. And this arrangement is different, as there are contingencies. In the past, VCs would just give you money in a particular series, and then if your business did well, they'd eventually give you more money in a later series. But it wasn't like they announced it all up front in, say, a Series A, but a big chunk of the money would only be delivered if you met milestones.

No, it's not common for the startup itself to make capital calls. The phrase (and your link) refers to capital calls made by VC firms to their limited partners. Same thing in PE.

> Amazon agreed to invest up to $50 billion in the startup

> Nvidia invested $30 billion

> Microsoft, one of OpenAI’s longtime partners, also participated

There is a lot of non-cash, never-will-be cash, investment here. Credits for compute.

I think more people are aware that VCs raise commitments for a fund that they can pull in via capital calls than are aware that startup funding from VCs come with hurdles to clear.

This is perhaps because the most common round to raise is a small/early one, and these tend not to have hurdles. Founders that only ever raised these rounds wouldn't necessarily know what happens in later/bigger rounds.

Also, I wonder if capital calls come with hurdles as well? That is, can an LP refuse to put in more money if the VC's recent investments have not done well? I would think not, since it typically takes many years to determine whether investments were good or not.

Gotta hit that high IRR as a fund manager and the clock starts when the cash comes in so capital calls are appreciated by fund managers. Unless they are emerging managers (the startup equivalent in finance) and their LP’s are less than institutional and ghost them when the capital call hits.

I think both things are true at once:

1) For a $100bn round, you won't get a single transfer of $100bn into your checking account, this is normal

2) Sam Altman is a liar and people (correctly) don't really believe him when he starts throwing numbers around

It’s confusing because it’s meant to be confusing. Bigger numbers are more impressive.

This is very standard, Ycombinator, which hosts this board, does the same: https://www.ycombinator.com/about

Note that even that "money in the bank" of traditional venture firm is not really money in the bank. VC, PE, and hedge fund managers usually don't have all the cash for the fund sitting in the bank at all times. Rather, their agreement with the LPs that fund the fund is structured as a series of capital calls: it gives the fund the right to demand that their LPs deposit cash in their bank accounts within 10-30 days, which can then be used to fund the investments that the VC firm makes. The capital calls are backed by legal documents enforceable in court, with pretty stiff penalties for failing to meet a capital call.

Such a funding structure here isn't all that different: the funding agreement gives OpenAI the right to call on their backers to make certain cash deposits, contingent upon milestones being met. Deep down inside, "money in the bank" doesn't actually exist, it's just mutual agreements backed by force of law.

That’s logically inconsistent. If the company was performing poorly enough that they couldn’t meet their funding milestones from a previous round, they’re not going to have an easy time raising the same money in a future round.

The milestones aren’t a hard-stop that forbids the previous funding round participants from providing the money if they still choose. It’s just an out.

The funds are committed under the terms of the deal (share price, things like board seats, and other details). There are legal obligations to provide it.

This is a common structure for large investments. It would be really inefficient for all of these investors and companies to have to have the money sitting in cash to do a deal and then transfer it into the company's bank where it sits and earns interest for years until they can deploy it.

Even VC firms who raise funds work this way. The capital is "committed" but investors don't wire all of the money over right away so it can sit in the VC firm's bank accounts, waiting. The VCs do what's called a "capital call" through which they're legally bound to provide the money they committed when requested, under the terms of the deal.

It's splashier this way, and is meant to shape the narrative, make other companies fear their warchest, and make hiring easier. Of course, those who are in-the-know won't be fooled, but the perception of the general public will be set in stone by the PR framing.

with these swings, I'm not sure how Son-san keeps himself from getting an ulcer

Yeah I checked their overall return. It's average. Not better than index funds IIRC.

also they need to pay back that in one year, so if OpenAI don't IPO this year they are screwed

"As of two years ago they were still liquidating out of it"

I get that people are scared of investing in China. But if I still made single stock investments, I would seriously consider BABA, it seems well positioned.

Which might not be a thing anymore soon the way things are going…

Retirement accounts already own funds and those in turn are often tied to the underlying index. If the time to being included in an index is reduced, they end up being automatically bought sooner. And that keeps their price from collapsing artificially.