In late 2024, OpenAI, still recovering from the aftershock of Sam Altman’s brief, messy ouster, began a relatively simple process of transitioning into a more traditionally profitable company that would be more attractive to investors. Then came the backlash.
Elon Musk, co-founder of OpenAI who left and launched a rival startup, has filed a lawsuit to block the restructuring, claiming it violates the company’s founding principles. The billionaire also made an unsuccessful bid to buy the nonprofit that runs OpenAI. Former OpenAI employees and nonprofit leaders asked regulators to stop this as well. Meanwhile, OpenAI spent months engaged in complex negotiations with its largest backer, Microsoft, over how their partnership with the new business entity would change.
On Tuesday, about a year after starting the process, OpenAI said it had completed the restructuring after signing a new pact with Microsoft and making concessions to state regulators charged with reviewing the deal, in what Delaware Atty. General Kathy Jennings described it as “a long and intense negotiation.”
While OpenAI has made compromises to make this happen, the restructuring is a decisive victory that will pave the way for a new era of increased investment in data centers, chips and talent to support AI development. OpenAI has already committed to spending $1.4 trillion on AI infrastructure, Altman said during a livestream event on Tuesday, and he expects to continue moving aggressively on that front.
To fund that, OpenAI will need to raise unprecedented amounts of capital through venture financing, debt and an eventual public offering, the latter of which Altman said remains the most likely path for the company. SoftBank, one of OpenAI’s largest backers, had reserved the right to withdraw billions in funding if OpenAI did not complete its restructuring in the coming months. Other investors may also have refused to hand out big checks to a company whose nonprofit structure hampered their financial returns.
“We are finally almost just Normal Co., as I call it internally,” OpenAI Chief Financial Officer Sarah Friar said in an on-stage interview at a conference in Riyadh on Wednesday. The steps announced this week will allow OpenAI to “continue to raise capital in a much less complex way,” she said.
But while OpenAI is eager to turn the page to a new chapter, many unanswered questions remain about the relationship between the nonprofit and the for-profit. This includes the crucial question of the extent to which the former can influence the latter.
In theory, the nonprofit board can exercise control by hiring or firing for-profit board members. In practice, however, firing OpenAI’s for-profit directors may prove difficult — at least for now — given that all but one of the nonprofit’s board members are also on the for-profit board. Two of the current nonprofit board members, Adam D’Angelo and Chairman Bret Taylor, currently run AI companies that use OpenAI’s software.
Nonprofit board members also do not have the power to fire executives at OpenAI’s for-profit business, according to two people familiar with the matter who spoke on the condition of anonymity to discuss internal matters. That’s a crucial detail, since it was another, smaller version of the nonprofit board that Altman fired two years ago, causing chaos at the company.
“The current arrangement still fails to ensure true independence or accountability to the public,” said Orson Aguilar, CEO of the nonprofit LatinoProsperity, which is part of a coalition called EyesOnOpenAI that has led efforts to campaign against the restructuring. “We are still very concerned about who is in charge.”
It’s also unclear how the nonprofit will deploy its considerable resources. It will receive a 26% equity stake in the company, or about $130 billion at OpenAI’s current valuation of $500 billion, as well as a warrant entitling it to an undisclosed amount of additional shares if the for-profit share price increases more than tenfold after 15 years. For starters, the nonprofit said it plans to spend $25 billion on AI that can help health and on efforts to minimize AI’s most serious risks. But a CEO or other staff has yet to be appointed.
“What we have now is the ability to deploy capital relatively quickly, and the structure for that was not conducive to that at all,” OpenAI nonprofit board member Zico Kolter told Bloomberg on Tuesday. “The design is now much better aligned to ensure that the nonprofit benefits from the value that OpenAI creates.”
Kolter is the only nonprofit board director who will no longer serve as a voting member of the for-profit board, but merely as an observer. (Another will be added to that list within a year of the restructuring.) He also chairs OpenAI’s Safety and Security Committee, which has the authority to delay the company’s product launch if it is deemed unsafe.
“We want to ensure that the processes and the high standards that we hold ourselves to, that OpenAI adheres to when it comes to models, are actually achieved,” Kolter said. “And if that is not the case, that we either notice it early or respond quickly.”
OpenAI’s relationship with Microsoft, which was fundamental to the AI startup’s early success, also remains complicated. While Microsoft has agreed to a 27% stake in OpenAI’s new for-profit entity, it is less clear how exactly the companies will determine the extent to which the software giant has access to OpenAI’s intellectual property.
OpenAI said an independent panel will play a key role in deciding when the company has achieved artificial general intelligence, a more powerful form of AI that many tech companies are trying to develop. When that happens, Microsoft will no longer be entitled to 20% of OpenAI’s revenue, nor will OpenAI have to grant Microsoft access to its latest AI research methods.
However, it is unclear how this panel will be selected and agreed upon by both companies, or what their criteria will be. In the meantime, it remains to be seen how Microsoft – increasingly a competitor to OpenAI – will use its access to OpenAI’s IP, including for things like data center and chip design, for its own benefit. Finally, Musk shows no signs of giving up his fight against the restructuring, even if that means undoing it after the fact. “They rolled forward and defied the judge’s wish that the legality of this would be fairly decided by a jury and not by politicians,” Marc Toberoff, Musk’s lead attorney in the OpenAI case, told Bloomberg News. OpenAI, he said, “you can hardly hear anyone complaining about the rigors of relaxing.”
Ghaffary writes for Bloomberg.
