June 16 According to The Information news, OpenAI CEO Sam Altman told some shareholders that the company is considering restructuring its governance structure to become a for-profit corporation that is not controlled by a nonprofit board.
The move is expected to pave the way for OpenAI's IPO, which is now valued at about $86 billion. At the same time, Altman also has the opportunity to take a stake in OpenAI.
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Accelerate OpenAI IPO
Last year, after Microsoft injected $13 billion into OpenAI, it was hit by a storm when the board decided to fire Altman, a move that provoked a backlash from for-profit employees and was not quelled until Altman was rehired. It is important to note that nonprofits are legally protected against the potential influence of minority shareholders against such shareholders from suing for the organization's failure to maximize profits as its primary objective.
By transforming into a for-profit business, the new entity will maintain OpenAI's original purpose of creating human-friendly artificial intelligence, while also opening up faster returns for investors who invest in its roughly $14 billion capital.
OpenAI is currently valued at $86 billion, and its shift to for-profit could speed up its IPO (initial public offering). In addition, such a shift will also provide Altman with the opportunity to increase his individual holdings.
For OpenAI, some existing investors revealed that it faces relatively little pressure to go public, because the company can continue to provide liquidity channels for existing employees and others through regular secondary share offerings similar to those implemented by SpaceX and Stripe.
In fact, OpenAI has arranged two such stock sales for employees in the past year, totaling more than $800 million in cash.
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Microsoft is behind the push
Several of Microsoft's top executives have long favored OpenAI's transformation into a full-fledged for-profit entity, with the aim of deepening Microsoft's grip on the AI pioneer by acquiring board seats and enhancing shareholder voting rights.
OpenAI has reportedly committed to distributing a certain percentage of profits to Microsoft and other investors under its for-profit structure, and this distribution is capped at increasing year by year, specifically, Microsoft can receive 75% of its profits before recovering its initial investment, and an additional 49% surplus within a certain threshold.
Although Microsoft does not have a direct seat on the eight members of OpenAI's nonprofit board, it has a non-voting observer seat. The upcoming changes are expected to remove the cap on shareholder profit distribution.
At this time, Altman does not hold any shares in OpenAI's for-profit division, and he intends to limit the number of shares on the board of directors to uphold the organization's principles. However, after the transition, Altman is expected to receive a significant share of equity, which Microsoft and other investors believe will allow Altman to focus more on OpenAI and reduce the likelihood that it will be distracted by other projects or invest in other AI companies.
OpenAI's investment lineup includes Reid in addition to Microsoft Hoffman Foundation, Khosla Ventures、Y Combinator, and his partner Paul Buchheit, as well as the University of Michigan, among others.
Also, Thrive Capital、Sequoia Capital、Founders The Fund and other well-known venture capital institutions have also actively participated in the process, further expanding their investment footprint in OpenAI by buying shares from early investors and OpenAI employees.
OpenAI and Microsoft will prioritize profits OpenAI and Microsoft will prioritize profit over AI academic theory. A key difference between for-profit and non-profit organizations is that nonprofit corporations are protected by law, and minority shareholders cannot sue the corporation for making decisions that do not prioritize shareholder returns; For-profit organizations, on the other hand, need to satisfy their customers and investors or go bankrupt, which also helps curb some of the erratic profligacies of management. OpenAI has a peculiar structure, consisting of a for-profit division, which is fully owned and controlled by the nonprofit parent company. OpenAI's previous "personnel drama" also highlighted the shortcomings of this hybrid structure: the board of directors directly removed the popular founder over unspecified disagreements, a behavior rarely seen among the management of profit-seeking entities. Altman, on the other hand, did not hold an equity stake when he founded OpenAI's for-profit division, and at that time he wanted to limit the number of directors who held shares. After switching to the new structure, he is expected to receive a "substantial" stake. Some investors said they would prefer Altman to have an equity stake so he could focus more on OpenAI. In addition, Microsoft executives who have been involved in working with OpenAI for years have been inclined to turn OpenAI into a full-fledged for-profit company. One of the executives said that the for-profit corporate structure could allow Microsoft to have more influence over OpenAI through board seats and shareholder voting rights.
