OpenAI, the organization founded as a non-profit, is reportedly considering transitioning into a for-profit company. According to anonymous sources cited by The Information, CEO Sam Altman revealed this plan to some shareholders last week. The idea is to convert OpenAI LP, the company’s subsidiary, from its current capped-profit structure to an unlimited-profit for-profit enterprise.
This decision may be influenced by OpenAI’s primary investor, Microsoft. Currently, OpenAI’s board of directors consists of eight members, with no external investors holding any seats. While Microsoft is the largest investor, it only has an “observer” seat on the board and cannot vote or influence decisions. However, if OpenAI becomes a for-profit company, Microsoft will gain voting rights as a shareholder and will be able to exercise influence through its board representation, thereby increasing its impact on OpenAI.
With a current valuation of $86 billion, if OpenAI indeed transforms into a for-profit company, it could expedite the process of its initial public offering (IPO). Altman and other investors would have the opportunity to own or increase their stake in the company, leading to a more optimistic return on investment.
However, some investors have pointed out that OpenAI already allows existing employees and other investors to sell their shares through regular secondary offerings. In 2023 alone, OpenAI conducted two secondary offerings, raising over $800 million. With ample funding, the pressure for OpenAI to go public is not significant.
OpenAI’s shift from its original intentions has raised concerns. Founded in San Francisco in 2015, OpenAI initially operated as a non-profit organization focused on AI research with the goal of developing general artificial intelligence (AGI) accessible to all, preventing its monopolization by large corporations or a select few individuals.
In 2019, to meet the growing demands for research, manpower, and cloud computing infrastructure, OpenAI established another company, OpenAI LP, with a capped-profit structure to raise funds from investors. To maintain its non-profit vision, OpenAI set a limit on investor returns, ensuring they could not earn more than 100 times their investment. Any excess profit would be allocated to the non-profit organization, serving as operational funding.
Furthermore, to preserve the independence of the non-profit organization, OpenAI implemented a policy prohibiting board members, including Altman, from owning OpenAI shares. Even major shareholders like Microsoft and others do not have seats on the board, thus limiting their influence on company governance.
Altman and other OpenAI members intended to strike a balance between attracting investments, maintaining independence, and securing a stable source of funding to advance the vision of democratizing general artificial intelligence. However, this system led to a power struggle within the board, resulting in Altman’s dismissal by the end of 2023. It was only after intense backlash from internal employees and Altman’s return that the conflict was resolved.
The potential transformation into a for-profit company has generated mixed reactions. For investors, it provides better assurance of returns on their investments. OpenAI’s public statements caution investors to view their contributions as “donations,” with the possibility of losing their capital without any guaranteed returns. Transitioning to a for-profit structure could align interests and potentially prevent future internal power struggles.
However, many industry professionals concerned with AI development worry about OpenAI’s rumored transformation. Non-profit organizations benefit from legal protection under San Francisco law, reducing the likelihood of shareholders initiating lawsuits against the prioritization of shareholder interests and minimizing shareholder interference.
There is apprehension that if OpenAI becomes a for-profit company, the non-profit board may lose control over the organization, compromising the independence it sought to maintain and deviating from the original vision of preventing AI technology monopolies.
Adding to these concerns is the recent appointment of the newest member of the OpenAI board, Paul Nakasone, a retired U.S. Army general who previously served as the director of the National Security Agency and commander of the U.S. Cyber Command. This appointment has drawn strong criticism from renowned cybersecurity expert Edward Snowden, who accuses OpenAI of deliberately betraying the rights of all individuals on Earth. Snowden suggests that the board may face potential intervention from the U.S. government in the future.
On his personal social media platform, X, Snowden warns the public, “Never trust OpenAI or its products. There is only one reason to appoint a former director of the National Security Agency to the board, and don’t blame me for not warning you.”
Source:
Cointelegraph
The Information
Editor: Yu-Ting Shao
