OpenAI Moves to Become a for-Profit Business After Its $6.6 Billion Fundraising
OpenAI, the artificial intelligence powerhouse valued at $157 billion after a recent $6.6 billion funding, is exploring a significant shift from its non-profit origins to a more conventional for-profit business model.
The company has entered early discussions with regulators in California and Delaware as it seeks to navigate this transition.
According to a Bloomberg report, sources familiar with the matter reveal that OpenAI is in preliminary conversations with the California attorney general’s office, discussing the complexities involved in changing its corporate structure.
A central focus of these discussions will be how OpenAI values its highly lucrative intellectual property, including its proprietary ChatGPT technology.
Delaware’s attorney general is also engaged, requesting detailed plans on the potential restructuring, according to a formal letter sent to OpenAI.
Balancing mission and profit
Originally established in 2015 as a non-profit organization with a mission to develop artificial intelligence for the greater good, OpenAI’s shift toward a for-profit model raises questions about maintaining its commitment to societal benefit.
However, OpenAI’s nonprofit board chairman, Bret Taylor, assured that the nonprofit would continue to play a significant role in any restructured entity.
“Any potential restructuring would ensure the nonprofit continues to exist and thrive, receiving full value for its current stake in the for-profit,” Taylor stated.
- The move toward a for-profit model has roots in OpenAI’s 2019 decision to establish a capped for-profit subsidiary to offset the high costs associated with AI development.
- Tensions have historically existed between OpenAI’s nonprofit board and management, particularly concerning the balance between AI safety and commercial imperatives.
- This tension became public in 2023 when CEO Sam Altman was briefly ousted, only to be reinstated following a dispute over the company’s commercialization strategy.
Navigating regulatory scrutiny
The regulatory process is expected to be intricate. Legal experts emphasize that California law requires the proper valuation of nonprofit assets and ensures these assets serve a charitable purpose.
Given OpenAI’s substantial intellectual property portfolio, this requirement could complicate the review.
“It’s not as simple as just turning off your nonprofit status. The value of those assets must be accounted for and directed appropriately,” explained Daren Shaver, a partner at Hanson Bridgett LLP.
Jason Kwon, OpenAI’s Chief Strategy Officer, informed staff in a September meeting that the restructuring would aim to preserve a nonprofit entity with a material stake in the for-profit company.
The exact percentage of this stake and how the assets are valued will be crucial elements in securing regulatory approval.
What you should know
Earlier this year, even before the current regulatory discussions on changing the company’s status, billionaire Elon Musk had filed a lawsuit against OpenAi and the company’s co-founders, Sam Altman and Greg Brockman for turning the company into a profit-making venture.
- Musk, who co-founded and was one of the early backers of OpenAI said the mission of the company was to be a non-profit that develops AI for the benefit of humanity.
- The Tesla CEO claimed that Altman and Brockman convinced him to help found and bankroll the startup in 2015 with promises it would be a non-profit focused on countering the competitive threat from Google.
According to the lawsuit, the founding agreement required OpenAI to make its technology “freely available” to the public.
