OpenAI and Microsoft engage in tense negotiations over the future of their partnership – News

Once the best of friends, OpenAI and its most important financial backer Microsoft Corp. are now involved in tough negotiations over the future of their partnership.

The talks are aimed at redefining the nature of their strategic alliance as the ChatGPT maker seeks a path toward a future initial public offering. The high-stakes discussions, first reported this weekend by The Financial Times, come at a time when OpenAI is looking to restructure itself as a public benefit corporation in order to attract billions of dollars in additional funding required to fuel the development of more powerful artificial intelligence.

The talks with Microsoft, which has already invested more than $13 billion in OpenAI, are fundamental to the AI startup’s future. OpenAI, which is run by a nonprofit entity, is seeking to balance its original mission to “benefit humanity” with the commercial demands of its investors, which have put up the immense capital that has enabled it to lead the AI revolution. Meanwhile, Microsoft is looking to ensure it can access OpenAI’s future technology beyond a deadline of 2030, as stipulated in its current contractual agreement.

Earlier this month, OpenAI said it’s scrapping plans for a restructuring that would have separated its nonprofit and for-profit arms, meaning that the founding non-profit entity will retain overall control. The commercial arm of the business will still be converted into a PBC. The shift is aimed at satisfying OpenAI’s investors and their commercial demands, but it still requires the approval of Microsoft, its biggest financial backer.

One of the most critical issues pertains to the amount of equity Microsoft will receive in the new PBC, while the terms of their original agreement established in 2019 are also subject to renegotiation. One source told the Financial Times that Microsoft is considering giving up some of its equity stake in the for-profit entity in exchange for guaranteed access to any new technologies it develops after the 2030 cutoff date.

The talks come at a time when OpenAI’s and Microsoft’s relations have come under scrutiny given the companies’ diverse interests. OpenAI has become way more ambitious in recent years, and is targeting enterprise customers with its AI products, while working with rivals of Microsoft, such as Oracle Corp. and SoftBank Group Corp., on “Stargate,” a massive multibillion-dollar AI infrastructure building project.

One senior Microsoft executive reportedly slammed OpenAI for its bad attitude, complaining that the startup just wants it to “give us money and compute and stay out of the way.”

“To be honest, that is a bad partner attitude, it shows arrogance,” the unnamed executive said. But he insisted that Microsoft still wants the partnership to succeed, adding that it’s a “tough negotiation” but both companies are confident they’ll get the details ironed out.

OpenAI has evolved dramatically from the original nonprofit research lab it set out to be. When it launched its for-profit subsidiary in 2019, it told investors to view any funds they provide in the “spirit of a donation,” citing its nonprofit mission.

Investors initially agreed to that, but that is not the case with further investments such as the $6.6 billion it raised in October 2024 or the $40 billion raise led by SoftBank in March. Now, OpenAI’s backers demand a substantial return on their investment.

OpenAI’s decision to become a PBC, which is the same model as the rival AI company Anthropic PBC, is said to be a “high-level recognition” of what’s needed to continue raising billions of dollars in investment. But the shift from a pure nonprofit has attracted lots of opposition.

One of the biggest critics is Elon Musk, who helped co-found OpenAI along with nine others, and has mounted a legal challenge to try and prevent the startup’s corporate restructuring.

“The charity is still turning over its assets and technology to private persons for private gain — including Sam Altman — while moving all of the charity’s actual work on AI/AGI into a giant for-profit corporation,” Musk’s attorney Marc Toberoff told Bloomberg after OpenAI revised its plans last week. “It changes nothing.”

OpenAI’s plans are also being scrutinized by regulators. Delaware Attorney General Kathy Jennings said last week her office intends to review the startup’s latest plan to ensure it complies with state law and accords with OpenAI’s “charitable purpose.”

Columbia Law School professor Dorothy Lund said OpenAI has been forced to walk a very tight line. “When you’re a mission-driven company which needs money from investors, you are in a dangerous position,” she said. “You want your investors to keep giving you huge billion-dollar checks, so you need to keep them happy.”

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