Potential investors’ intentions to achieve a beneficial reorganization from OpenAI were previously reported, and now Reuters claims that the very possibility of further raising capital, which will value the startup’s business at $150 billion, will greatly depend on the proposed reforms.
Image source: OpenAI
According to the source, OpenAI’s new round of financing will involve the issuance of convertible bonds, which will allow holders of the startup’s debt obligations to exchange them for an equity stake in the future. Potential creditors are now insisting that OpenAI must change its organizational structure and remove restrictions on how much profit investors receive. As the source explains, after its founding in 2015, OpenAI limited the size of investors’ future profits to a hundred times the value of their investments. Anything earned above a certain amount would be donated to the non-profit organization that runs OpenAI. Subsequent rounds of financing only reduced this proportion, further limiting the amount of profit available to investors.
It is generally accepted that OpenAI has managed to attract more than $10 billion in investments over the history of its existence, with the bulk of the funds contributed by Microsoft Corporation, which ultimately cannot receive more than half of OpenAI’s profits. Thrive Capital, Khoshla Ventures and Microsoft are expected to re-participate in the startup’s new round of funding, but will be joined by Nvidia, Apple and Sequoia Capital. If negotiations with investors to change the organizational structure, following the example of most commercial corporations, are not successful, then the conversion price of the bonds issued as part of the discussed financing round may decrease. OpenAI’s board of directors will also have to consider lifting restrictions on the amount of profit investors can receive. The startup is already consulting with lawyers about the possibility of changing its own organizational structure.
OpenAI adheres to a certain extent to the restrictions on the proportion of profits received by investors, based on its original mission as a non-profit organization. If the changes proposed by the new investors are implemented, then the startup’s original mission will have to be abandoned. OpenAI’s February funding round estimated the startup’s capitalization at $80 billion, as Reuters recalls. As part of the new stage, it is planned to raise $6.5 billion, but investors set conditions that take into account their commercial interests.