Ready to Buy OpenAI Before a Potential IPO? Robinhood Just Made It Possible for Retail Investors

No consumer-facing company has grown faster than OpenAI, the parent company of ChatGPT, the first AI chatbot that, more or less, sparked the artificial intelligence revolution over three years ago. Earlier this year, ChatGPT reached 900 million weekly active users.

OpenAI just closed a jaw-dropping $122 billion financing round and has plans to eventually go public as well. Needless to say, when OpenAI does go public, it will be one of the largest and most anticipated IPOs ever.

Image source: Getty Images.

Retail investors love AI stocks, so I suspect there will be strong interest in an OpenAI IPO. However, thanks to the popular online brokerage Robinhood, they can now invest in OpenAI before a potential IPO.

What investors need to know about the Robinhood offering

Several popular online brokerages, including Robinhood, which pioneered commission-free trading, have begun launching funds that purchase stakes in large, private tech companies expected to go public, allowing retail investors to purchase shares in these funds.

The Robinhood Ventures Fund 1 (NYSE: RVI) is a closed-end fund that began trading in March. A closed-end fund shares some similarities with mutual funds, as they are typically managed by investment professionals and carry exposure to multiple stocks or assets.

However, while shares of a mutual fund can be redeemed every day, closed-end funds do not allow redemptions. Instead, they issue a fixed number of shares that trade on a secondary market, similar to a regular stock.

RVI holds stakes in 10 private companies, including OpenAI, which it just purchased a $75 million stake in.

The news was well received, with RVI shares surging nearly 16% as of 11:33 a.m. ET.

"OpenAI is one of the frontier artificial intelligence companies, and we are incredibly proud to add them to the Fund," RVI's President Sarah Pinto said in a statement. "As one of RVI's largest investments to date, this underscores our core mission to provide everyday investors with access to what we believe are transformative companies shaping the future."

The other stocks in the fund are as follows:

• Databricks-23.24%
• Revolut-14.30%
• Mercor-14.23%
• Airwallex-7.11%
• Boom Supersonic-7.11%
• Oura -- 7.11%
• Ramp -- 7.11%
• ElevenLabs -- N/A (new stake)
• OpenAI -- N/A (new stake)
• Stripe -- N/A (new stake)

As mentioned above, OpenAI recently raised $122 billion at a $852 billion valuation, so investors in RVI likely aren't getting a valuation under that. Looking ahead to the IPO, reports have suggested the company could be valued at $1 trillion or more by that time.

While OpenAI has tremendous potential, it also faces concerns from investors, including competition from the likes of Anthropic, tremendous cash burn, and the company's outstanding AI infrastructure commitments, which reportedly amount to $1.4 trillion over the next eight years.

Another thing about investing in private companies is that their valuations can be more volatile because they aren't traded or evaluated as frequently as those of publicly traded companies, which must provide detailed financial reports each quarter.

It's possible the IPOs don't get as much demand as expected, or, as has often been the case, they do get incredible demand at the time of the IPO and then sell-off intensely months later.

Given the lack of public financial information about these companies and the dynamics of private markets, I wouldn't recommend that retail investors take anything more than a small, speculative position in RVI at this time.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.