OpenAI has completed its for-profit transition
Image: Justin Sullivan
OpenAI officially adopted a new for-profit structure yesterday following a lengthy legal saga, in a change allowing the ChatGPT-maker to operate more like a traditional company and potentially hold an IPO in the future.
Here’s the deets
Under a plan approved yesterday by Delaware’s AG, OpenAI cemented its structure as a nonprofit with a controlling stake in its for-profit business, whose $500 billion valuation ranks it as the world’s biggest private company.
The nonprofit, now called the OpenAI Foundation, holds a 26% controlling stake in the for-profit company, called OpenAI Group. It also has a chance to receive “significant additional equity” if the share price increases more than tenfold after 15 years.
- 47% of OpenAI Group is held by current/former employees and other investors.
- The remaining 27% is held by Microsoft, which has invested nearly $14 billion in OpenAI dating to 2019.
The agreement also grants Microsoft exclusive IP rights to OpenAI tech until 2032, excluding consumer hardware.
The new structure will make it easier for OpenAI to raise money, attract talent, and hold a potential IPO in the future, analysts say. It also ends a nearly year of the AI giant negotiating with state regulators, key investors, and the philanthropic community over whether OpenAI can remain true to its initial nonprofit mission of benefitting humanity under its new structure.
Not everyone is pleased
OpenAI continues to face lawsuits from Elon Musk’s xAI and other parties over its corporate status, with the suits alleging that OpenAI has strayed from its nonprofit mission by seeking to implement a more traditional company structure.
- While OpenAI says its nonprofit will retain control of the company and its future direction, some advocacy groups and critics remain doubtful.
- They argue the past two years have seen OpenAI’s for-profit arm take precedence over its nonprofit goals—and that trend is all-but-certain to continue under this new deal, since the boards are nearly identical between the nonprofit OpenAI Foundation and for-profit OpenAI Group.
Looking ahead…Many experts say OpenAI will likely seek an IPO in the months or years ahead, due to past investors seeking returns that only a public offering can raise.
📊 Flash poll: In general, do you support or oppose OpenAI’s move to adopt a new for-profit structure?
See a 360° view of what pundits are saying →
Sprinkles from the Left
- Some commentators argue that OpenAI hasn’t solved its challenges with Microsoft with its new conversion to a public benefit corporation—but it has simplified them and made it easier for the ChatGPT-maker to branch out and partner with other companies.
- Others contend that OpenAI still hasn’t answered fundamental questions about their for-profit conversion, like what happens when shareholder interests conflict with the public interest that the nonprofit is legally bound to serve.
- “OpenAI and Microsoft Are Avoiding a Messy Breakup” –Dave Lee, Bloomberg
- “Why California’s attorney general must continue the investigation into OpenAI” –Orson Aguilar and Catherine Bracy, CalMatters
- “Why is OpenAI planning to become a for-profit business and does it matter?” –Dan Milmo, The Guardian
Sprinkles from the Right
- Some commentators argue that there is no inherent conflict between running a straightforward for-profit company and building safe, robust AI technology, since reckless behaviour that regulates an industry out of existence would endanger companies’ profits.
- Others contend that Microsoft should open up more about its relationship with OpenAI, as its silence in this area might have been defensible when OpenAI was relatively small and its value to Microsoft was immaterial—but that’s no longer the case.
- “OpenAI is right to abandon non-profit status” –Nathan Benaich, Financial Times
- “Microsoft Needs to Open Up More About Its OpenAI Dealings” –Jonathan Weil, WSJ
- “OpenAI still has a governance problem” –John Thornhill, Financial Times
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