University of Michigan: $20 Million Bet on OpenAI

The University of Michigan has made a strategic investment of $20 million in OpenAI, a decision that could prove to be extremely lucrative. This investment was made before Microsoft injected billions into OpenAI and before ChatGPT became a global phenomenon, according to court documents related to the conflict between Elon Musk and Sam Altman.

While the precise details of the agreement have not been disclosed, the university hopes to recoup $2 billion from this investment. This amount represents the "target buyout amount" set by the university, placing the Ann Arbor school in an enviable position.

The University of Michigan is not alone in this bold bet. It is part of a group of early investors that includes $50 million from Khosla Ventures and Reid Hoffman's philanthropic fund, Aphorism Foundation. This group also includes $10 million from a Y Combinator fund and $3 million from the trust of Paul Buchheit, the creator of Gmail. Microsoft joined the movement later with a massive injection of $1 billion in 2019.

According to the documents, the University of Michigan and the other initial investors would have priority over Microsoft for OpenAI payments. Additionally, their "target buyout amounts" would increase with inflation, further strengthening their position.

Although neither the University of Michigan nor OpenAI has commented on this information, it is common for university endowments to collaborate with Silicon Valley venture capitalists. However, direct participation like this remains rare. The university's endowment, valued at $21.2 billion last year, has also invested alongside the venture capital funds of Sam Altman and his brother Jack Altman.

Dan Feder, the university's head of venture capital and private equity investments, shared during a podcast with Jack Altman that venture capital is a "mediocre" field unless you have access to key companies. Altman countered that in this particular case, the investment is "obviously very good." Feder confirmed, "It's going very well. Very, very well."

The University of Michigan is not the only educational institution to benefit from early tech investments. In 2017, a Catholic high school in the San Francisco Bay Area made a gain of $24 million from the IPO of Snap.