A seismic shift is underway at OpenAI, the developer of ChatGPT, as it considers transitioning from a nonprofit to a for-profit company. This move could have significant implications for its deep-pocketed benefactor, Microsoft, which stands to gain substantially if OpenAI is allowed to operate more like a startup. According to experts, a reconfigured business structure would give Microsoft the opportunity to renegotiate its profit cap and potentially gain an interest in OpenAI-created general artificial intelligence (GAI).
However, the transition is not without its challenges. OpenAI’s massive valuation, complex web of for-profit subsidiaries, and potentially risky technology make the switch legally and publicly complicated. Regulators may push back, and there are concerns about the company’s charitable status and the potential for Microsoft to extract profits from its investments.
Despite these hurdles, OpenAI’s investors see significant upside. The company has just raised $6.6 billion in its latest funding round, valuing it at $157 billion. But this valuation is contingent on OpenAI becoming a for-profit entity. As the company navigates this transition, it is also facing an executive exodus, increased competition from rivals, and regulatory scrutiny.
OpenAI’s origins date back to 2015, when it was founded as a nonprofit with a mission to advance humanity rather than pursue profits. However, in 2019, the company created a for-profit subsidiary to raise outside venture capital, including billions from Microsoft. This structure has led to tension between the nonprofit and for-profit arms of the company, culminating in a dramatic boardroom clash in 2023.
The proposed transition has already attracted interest from US and European regulators, who are concerned about the implications for public scrutiny and accountability. There are also calls for California’s attorney general to investigate the legality of OpenAI’s business structure.
One key question is how Microsoft will be able to extract profits from its investments. As a nonprofit, OpenAI is required to use its assets only for charitable purposes, and regulators will need to ensure that the company received fair market value for its assets.
Experts believe that OpenAI’s best bet for avoiding conflict is to compensate the nonprofit enough and register as a public benefit corporation, which would give it more freedom to spend on civically minded initiatives. This move could generate considerable investor interest and accelerate OpenAI’s advantages in the capital-intensive AI industry.
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