OpenAI Considers Corporate Restructuring to Attract Investors

Report: OpenAI Considers Making Corporate Structure More Attractive to Investors

OpenAI is reportedly considering changing its corporate structure to make that structure simpler and more attractive to financial backers. The artificial intelligence (AI) company currently issues investors equity from its for-profit subsidiary, which is governed by its non-profit board whose "principal beneficiary is humanity, not OpenAI investors," the Financial Times (FT) reported Friday (Aug. 30). One change that OpenAI is considering is removing the present cap on profits that can be earned by investors, but the company has not made a final decision on whether or how to make any changes, the report said, citing unnamed sources. Responding to these claims, OpenAI told the FT, per the report: "We remain focused on building AI that benefits everyone and as we've previously shared we're working with our board to ensure that we're best positioned to succeed in our mission. The non-profit is core to our mission and will continue to exist." This report comes at a time when OpenAI reportedly aims to raise "several billion dollars" in a funding round that would value it above $100 billion. The company was most recently valued at $86 billion when employees sold shares in late 2023. Its ChatGPT chatbot currently has hundreds of millions of monthly users. Its next funding round is reportedly being led by venture capital firm Thrive Capital, with participation by Apple, Nvidia and Microsoft. Microsoft has already invested $13 billion in OpenAI since 2019. OpenAI is also facing a lawsuit from Elon Musk, who helped found the startup in 2015 and now accuses it and co-founders Sam Altman and Greg Brockman of violating the company's founding principles by prioritizing profits over the larger common good. Musk alleges that Altman and Brockman abandoned the company's original mission of humanity-focused AI when they teamed up with Microsoft. OpenAI has said in the past that it plans to move to have the suit dismissed, that it realized artificial general intelligence (AGI) will require "far more resources than we'd originally imagined," that the company and Musk agreed in 2017 that a for-profit entity would be needed to acquire those resources, and that it advances its mission by building beneficial tools that are widely available.

OpenAI could reportedly change its corporate structure - SiliconANGLE

OpenAI is weighing the possibility of changing its corporate structure, multiple sources familiar with the matter told the Financial Times today. The move would reportedly be intended to help the company draw more investor interest. Earlier this week, multiple publications reported that OpenAI is in the process of raising a new funding round worth several billion dollars. The investment, which could reportedly include the participation of Microsoft Corp., Nvidia Corp. and Apple Inc., is expected to value the ChatGPT developer at more than $100 billion. OpenAI originally launched in 2015 as a nonprofit. In 2019, it established a for-profit arm to lead its artificial intelligence development efforts. The for-profit arm's work is supervised by the board of the original nonprofit that launched in 2015. There are also other unusual details about OpenAI's organizational structure. Its for-profit arm has caps designed to limit the maximum returns that investors and employees can realize on their shares. OpenAI's website states that the goal of this arrangement is to "incentivize them to research, develop, and deploy AGI in a way that balances commerciality with safety and sustainability." According to today's Financial Times report, investors in the AI provider are required to sign a contract that states "it would be wise to view any investment in [OpenAI's for-profit subsidiary] in the spirit of a donation." The document goes on to caution that OpenAI may never turn a profit. The ChatGPT developer's corporate structure is currently the focus of a lawsuit from Elon Musk. The complaint alleges that OpenAI positioned itself as a nonprofit dedicated to developing open-source artificial intelligence models when it launched in 2015, but breached this commitment when it formed its for-profit arm. After the lawsuit was filed, OpenAI published an email in which Musk appears to back the idea the AI provider should adopt a for-profit approach. OpenAI has reportedly not yet decided how to change its corporate structure. According to today's report, one possibility is that it may remove the caps on investors' returns. It's unclear whether the option of reincorporating OpenAI as a regular company is also on the table. Such a shift might enable the AI developer to eventually go public. A stock market listing would give Microsoft, as well as the participants in the funding round that OpenAI reportedly raising, a new opportunity to realize a return on their investments. OpenAI has reportedly agreed to provide 75% of its profits to Microsoft until the latter company makes back its investment. The AI developer is not yet profitable: it's on track to lose $5 billion by year's end according to a July report in The Information. OpenAI has reportedly spent $8.4 billion to date on its AI development efforts. The Financial Times' sources said that there's a possibility the AI provider will eventually opt not to change its corporate structure. OpenAI told the paper in a statement that "we remain focused on building AI that benefits everyone and as we've previously shared we're working with our board to ensure that we're best positioned to succeed in our mission. The non-profit is core to our mission and will continue to exist."

OpenAI said to consider changing structure to make it more investor friendly: report

OpenAI, the generative artificial intelligence startup backed by Microsoft (NASDAQ:MSFT), has been considering altering its structure to make it more friendly to investors, the Financial Times reported, citing sources familiar with the matter. The company is currently set up in a complex structure that has both non-profit and for-profit subsidiaries. One option under discussion would be to remove the cap on profits for investors in the for-profit subsidiary, the news outlet added. OpenAI's board of directors, which are part of its non-profit subsidiary, oversees its for-profit subsidiary. Elon Musk, who co-founded OpenAI years ago and is suing the company for putting profit over humanity, weighed in on the news. "Either turning a non-profit into a for-profit is legal and everyone should be doing it or it's illegal and OpenAI is a house of cards," Musk wrote on X, formerly known as Twitter. OpenAI is currently in discussions to raise a new round of funding that would value the company at more than $100B and would come after Chief Executive Officer Sam Altman disclosed to Axios that its ChatGPT service has more than 200M weekly active users. The funding round would be led by venture capital firm Thrive Capital, while existing investor Microsoft is also likely to participate in the round. Microsoft has invested multiple billions of dollars in OpenAI. Apple (AAPL) and Nvidia (NVDA), which have partnerships with OpenAI, may also participate in the deal. OpenAI did not immediately respond to a request for comment from Seeking Alpha. More on Microsoft Microsoft's Share Price Is Still Not Justified Analyzing The Threats: The Potential Risks Of Microsoft's Major AI Infrastructure Spending Microsoft: Ignore Short-Term Noise And Focus On The Bigger Picture OpenAI works to release next-level AI product this fall: report Microsoft inks clean energy deals to meet its climate goals

OpenAI considers changes to its corporate structure amid latest funding talks

George Hammond in San Francisco and Madhumita Murgia in London OpenAI is in discussions about changing its corporate structure to become more investor-friendly, as it pushes ahead with a multibillion-dollar fundraise and seeks to retain its lead over Google and other rivals. The artificial intelligence start-up has spoken to investors about restructuring itself, according to three people involved in those conversations. Although a final form has not been agreed, it would likely be more attractive to financial backers by seeking to simplify the company's current complex non-profit structure, they added. The discussions come as OpenAI is in talks to raise new capital at a valuation of more than $100bn, according to multiple people familiar with the deal, in a fundraising round that is expected to be led by venture capital firm Thrive Capital. Apple and Nvidia are in talks to participate in the round for the first time alongside existing OpenAI partner Microsoft, according to two of the people. If successful, the round would make OpenAI one of the most valuable technology start-ups in Silicon Valley history, surpassing the $95bn valuation achieved by payments company Stripe in a 2021 private fundraising. It would also give the start-up the financial backing of the three most valuable tech companies in the world. "We remain focused on building AI that benefits everyone and as we've previously shared we're working with our board to ensure that we're best positioned to succeed in our mission," OpenAI said in a statement. "The non-profit is core to our mission and will continue to exist." Nvidia, Apple, Microsoft and Thrive declined to comment. OpenAI currently has a unique corporate structure. Investors are issued equity by OpenAI's for-profit subsidiary, which is governed by its non-profit board. The board's "principal beneficiary is humanity, not OpenAI investors," according to the company. Earlier this month, OpenAI was sued by its co-founder and tech billionaire Elon Musk, who claims that it backtracked on its mission to benefit humanity when it signed a commercial partnership with Microsoft. This week, Musk posted on X that "either turning a non-profit into a for-profit is legal and everyone should be doing it, or it's illegal and OpenAI is a house of cards." There has not yet been a final decision on whether to change OpenAI's structure, but one option under consideration would be removing an existing cap on profits for investors in the for-profit subsidiary. OpenAI rival Anthropic has a traditional benefit corporation structure in order "to appropriately balance the public benefit with stockholder interests". OpenAI's current structure was designed to ensure it remained aligned to its mission of benefiting humanity with super-powerful AI models, while enabling it to garner the considerable financial resources required to do so. However, the company's unusually complex set-up came under scrutiny last November during an attempted coup against chief executive and co-founder Sam Altman. Directors of the non-profit board that ultimately controls the company ousted Altman, but he returned days later following pressure from employees and investors in OpenAI's for-profit subsidiary. Investors are currently required to sign up to an operating agreement that states: "It would be wise to view any investment in [OpenAI's for-profit subsidiary] in the spirit of a donation" and that OpenAI "may never make a profit". That has not been an impediment to fundraising in the past. OpenAI has received $13bn from Microsoft alone since launching the for-profit subsidiary in 2019. But shifting to a simpler for-profit structure would be welcomed by the start-up's financial partners, according to one investor in OpenAI. "All preferred investors have a profit cap, there's a lot of talk about making it a more traditional investment so we're not capped on our upside," the person said.

OpenAI Considering Removing Cap On Profits For Investors - Report

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy. Microsoft backed OpenAI is considering changing its legal structure in order to woo more investors, as per a report from the Financial Times. The firm, which pushed artificial intelligence into the limelight in 2022, has been busy expanding its services since then. Its current structure, which sees a for profit division overseen by a nonprofit model, has been criticized by several quarters, with one of the most vocal critics being Elon Musk. Now, as per three people quoted by the FT, OpenAI is interested in 'simplifying' its business as part of a process that could remove limits set on investors earning profits, with a final decision remaining elusive as of now. While ChatGPT only became popular in late 2022 and early 2023, OpenAI has been working on artificial intelligence for years. The firm was set up in 2015, and spent its time developing AI technologies after raising funds from major players in Silicon Valley. As its products started to take shape, particularly after the release of GPT-2 in 2019, OpenAI's ownership structure began to evolve. This saw the firm limit its investor payouts to 100 times the investment after it created OpenAI LLP in March 2019. The firm justified this decision by stating that it needed to "invest billions of dollars" into the infrastructure needed to develop artificial intelligence as well as the need to compete with companies like Google that could offer their employees stock options as competitive packages. It also outlined that any returns above the owed payouts would belong to the "original OpenAI Nonprofit entity." The cap introduced in 2019 is now at the center of debate involving a revamped corporate structure for OpenAI to make itself more attractive for raising capital. An earlier report from the Wall Street Journal had claimed that Apple was interested in investing in OpenAI, as part of a funding round that had valued the firm at $100 billion. In its latest report, the Financial Times quotes three sources that share that OpenAI is interested in revamping the business structure. "All preferred investors have a profit cap, there's a lot of talk about making it a more traditional investment so we're not capped on our upside," the publication quotes one OpenAI investor. While the recent investment talks have seen claims of a $100 billion valuation for the firm, AI GPU maker NVIDIA is worth roughly $3 trillion even after its latest earnings results failed to impress investors on the twin fronts of growth and cost control. In its statement given to the publication, OpenAI stressed that it is "focused on building AI that benefits everyone," adding that the "non-profit is core to our mission and will continue to exist." The struggle between its nonprofit and for profit structure has seen Elon Musk, one of OpenAI's earliest investors sue the company. As the FT notes, it was also at the heart of OpenAI CEO Altman's ousting and return last year after a decision by the nonprofit board was eventually reversed through influence from investors, particularly Microsoft, in the for profit part of the company.