Earlier this month, it emerged that the startup OpenAI had abandoned its original restructuring plan to go commercial under pressure from activists. But the company’s sparsely disclosed organizational structure still leaves room for concern among investors and regulators alike.
Image source: OpenAI
All OpenAI did this month was essentially admit that the charity’s board would retain control over the startup’s commercial operations. The thinking had been that moving to a more for-profit structure would make it easier for OpenAI to raise money from investors in the future. In October, the startup raised $6.6 billion from Microsoft, which remains OpenAI’s main investor, but the terms of that deal required the startup to restructure within two years. Failure to do so would mean OpenAI would have to gradually repay the $6.6 billion, since the funds would be treated as a loan.
It is not yet clear, as business law experts interviewed by Engadget note, how members of the board of directors of the non-profit OpenAI will be appointed, what their powers will be, and whether they will receive any preferred shares that will allow them to retain influence over the fate of the business in the event of an additional share issue or an IPO. The procedure for re-election of board members has not yet been spelled out, nor have the grounds for the inclusion of investor representatives on the board been determined. The use of dual class shares usually allows the board of directors to retain dominant voting rights in the event of an additional share issue or an IPO.
OpenAI representatives in the public sphere have so far limited themselves to statements that the details of the new restructuring plan are being discussed with the attorneys general of the states of California and Delaware, Microsoft Corporation, and members of the relevant committee of the board of directors. According to available information, OpenAI is still seeking to remove the limit on the amount of profit distributed among investors. Currently, the latter cannot receive more than 100 times the amount of their investments, but it is desirable to remove this limitation in order to attract new investments. For the company itself, these formulas are not so relevant yet, since last year it suffered approximately $5 billion in losses and has never become profitable in its history.
In a pitch to OpenAI employees, CEO Sam Altman made it clear that the company is looking to move toward a more traditional capital structure that “allows everyone to own shares.” With so many companies building strong artificial intelligence (AGI) in the market, that structure makes more sense, according to the OpenAI CEO.