AI: OpenAI's efforts on for-profit structure. RTZ #712

Michael Parekh AI: Reset to Zero

3 weeks ago

5 MIN READ

Some partial clarity and progress on OpenAI’s long road to redo its corporate restructuring from non profit to somewhat profit. On a journey filled with drama, particularly two Novembers ago, when OpenAI’s non profit board fired and then rehired founder/CEO Sam Altman, and partner Microsoft almost bought OpenAI lock, stock and AI barrels, the company now seems on a path to have its profit cake and eat it too. Even with some of its former founders building new AI ventures.

So much remains to be done. Let’s unpack the developments thus far.

Axios lays it out in “Where OpenAI’s for-profit switcheroo leaves Sam Altman”:

“The latest plot twist in OpenAI’s epic corporate drama leaves Sam Altman only partway toward his goal, announced last year, of separating the ChatGPT maker from the nonprofit that controls it.”

“Why it matters: Since Altman was briefly ousted as CEO by the nonprofit board in November 2023, his efforts to raise billions for OpenAI’s mission of creating advanced AI “that benefits all of humanity” have been shadowed by questions about the firm’s governance.”

A critical tweak was uncapping profits for investors and partners.

“Driving the news: Under the revamped plan unveiled Monday, OpenAI’s for-profit arm will, as previously announced, shift from a “capped-profit” partnership to a public benefit corporation.”

“PBCs are a relatively new structure that lets companies prioritize other goals besides profit.”
“But they’ve already become a known quantity to investors — OpenAI rival Anthropic is also a PBC.”
“Also, crucially, they don’t put a limit on how much money an investor can make.”

A tweak critical for new investors and partners like Softbank, independent of OpenAI’s Stargate partnership on AI Infrastructure with Softbank:

“This plan would let OpenAI hang on to tens of billions of dollars in recent funding that is contingent on a restructuring — assuming OpenAI meets its upcoming deadlines for the changes.”

“A recent investment round led by SoftBank requires the company to complete a restructuring by the end of the year, while an earlier round last fall called for the changes to be implemented within two years.”

Yes, but: The other big part of Altman’s original plan was to make this for-profit company independent of its current nonprofit board — the entity that fired him a year and a half ago (though its membership has since almost entirely changed).”

“That’s not happening now.”
“Instead of a transaction in which the for-profit OpenAI buys its freedom from the nonprofit that currently controls it by handing it a big chunk of the company, as Altman originally proposed, the nonprofit board will remain the ultimate boss — and get a hefty pile of shares, too.”

But the non profit board remains in control of the for profit subsidiary:

“That means that, in theory, what happened in November 2023 could happen again. A future OpenAI nonprofit board could decide that OpenAI-the-company wasn’t staying true to its mission, and fire its leadership.:

The next critical step is to negotiate additional terms with Microsoft, a critical partner with whom to align interests:

“What’s next: A lot of people still need to sign off on the new deal — most centrally, Microsoft.”

“Broadly speaking, Microsoft is looking to preserve the value of its massive investments in OpenAI — at least $13 billion invested or committed to date.”
“The two companies have grown less close since the November 2023 crisis, and OpenAI has turned to other major investors, like SoftBank, for its next wave of expansion plans.”
“Microsoft declined to comment. Bloomberg reported late Monday that Microsoft and OpenAI are still negotiating.”

And to keep state regulators happy, who originally signed off on the non-profit structure:

“Regulators have also indicated they want to take a look at OpenAI’s revised plan, with the attorney generals from California and Delaware among those who could weigh in.”

“Now that the company has a new plan, I intend to review it for compliance with Delaware law by ensuring that it accords with OpenAI’s charitable purpose and that the nonprofit entity retains appropriate control over the for-profit entity,” Delaware attorney general Kathy Jennings said in a statement to Wired.”

Also outstanding is OpenAI’s legal kerfuffles with Elon Musk, a long ago ex-founder, and current competitor in LLM AIs with X/xAI/Grok/Tesla and beyond:

“The new plan doesn’t appear to have put to rest OpenAI’s long-running legal battle with co-founder Elon Musk. who has sought to block the company’s restructuring, claiming it’s a betrayal of the original mission.”

“Musk’s lawyer told Reuters late Monday he would continue to pursue his lawsuit. An OpenAI spokesperson told Axios, in a statement: “Elon continuing with his baseless lawsuit only proves that it was always a bad-faith attempt to slow us down.”

And broader constituents to address as well:

“Other critics are also saying they aren’t satisfied with the latest approach.”

“OpenAI’s announcement is effectively a commitment to maintain the status quo, with some changes around the margins,” Public Citizen co-president Robert Weissman said in a statement.”
“The problem is, the status quo arrangement at OpenAI has failed to uphold the enterprise’s nonprofit mission,” Weissman said. “Since the November 2023 coup, OpenAI has consistently led the industry in subordinating safety concerns and rushing risky technologies to market — far more so than for-profit competitors like Microsoft and Google.”

“The bottom line: “OpenAI is not a normal company and never will be,” Altman wrote Monday in a letter to employees that he later shared publicly.”

So OpenAI has a ways to go on its corporate restructuring as well as its core AI business. WIth all the futures ahead that can be imagined.