OpenAI needs ‘more capital than we had imagined’ and becomes for-profit

OpenAI said Friday that moving toward a new for-profit structure in 2025, the company will create a public benefit corporation to oversee business operations, removing some of its nonprofit restrictions and allowing it to function more like a startup. high growth.

“The hundreds of billions of dollars that major companies are now investing in AI development show what it will really take for OpenAI to continue its mission,” OpenAI’s board of directors wrote in the post. “Once again we need to raise more capital than we had imagined. Investors want to back us but, at this scale of capital, they need conventional capital and less structural customization.”

The pressure on OpenAI is tied to its $157 billion valuation, achieved in the two years since the company launched its viral chatbot, ChatGPT, and ignited the rise of generative artificial intelligence. Open AI closed its latest round of $6.6 billion in Octoberpreparing to compete aggressively with Elon Musk xAI as well as microsoft, Google, Amazon and Anthropic in a market that is expected to exceed $1 trillion in income in a decade.

Developing the large language models at the heart of ChatGPT and other generative AI products requires continued investment in high-powered processors, largely provided by NVIDIAand cloud infrastructure, which OpenAI receives largely from the main sponsor, Microsoft.

OpenAI expects around $5 billion in losses on $3.7 billion in revenue this year, CNBC confirmed in September. Those numbers are increasing rapidly.

By transforming into a Delaware PBC “with common stock,” OpenAI says it can conduct commercial operations, while separately hiring staff for its nonprofit arm and allowing that wing to take on charitable activities in healthcare, education and science.

The nonprofit will have a “significant interest” in the PBC “based on a fair valuation determined by independent financial advisors,” OpenAI wrote.

OpenAI’s complicated structure as it exists today is the result of its creation as a nonprofit in 2015. It was founded by CEO Sam Altman, Musk and others as a research lab focused on artificial general intelligence, or AGI. , which was a completely futuristic concept at the time.

In 2019, OpenAI was looking to move beyond being a simple research lab in hopes of functioning more like a startup, so it created a so-called limited-profit model, in which the nonprofit still controls the overall entity.

“Our current structure does not allow the Board to directly consider the interests of those who would fund the mission and does not allow nonprofits to do more than police for-profit organizations,” OpenAI wrote in Friday’s post.

OpenAI added that the change “would allow us to raise the necessary capital on conventional terms like our competitors.”

OpenAI’s efforts to restructure face some major obstacles. The most significant is Musk, who finds himself in the middle of a heated legal battle with Altman that could have a significant impact on the company’s future.

In recent months, Musk has sued OpenAI and asked a court to prevent the company from changing from a non-profit organization to a for-profit corporation. In posts on X, he described that effort as a “total scam” and claimed that “OpenAI is evil.” Earlier this month, OpenAI responded: claiming that In 2017, Musk “not only wanted, but actually created, a for-profit organization” to serve as the company’s proposed new structure.

In addition to its clash with Musk, OpenAI has been dealing with an exit of high-level talent, due in part to concerns that the company has focused on bringing commercial products to market at the expense of security.

In late September, OpenAI CTO Mira Murati announced that leave the company after 6½ years. That same day, research chief Bob McGrew and Barret Zoph, vice president of research, also announced they were leaving. One month before, co-founder John Schulman said he would leave for rival startup Anthropic.

Altman said during a September interview at Italian Tech Week that the recent executive departures were not related to the company’s possible restructuring: “We have been thinking about it (our board has) for almost a year independently, as we think about what it takes to get to our next stage,” he said.

Those weren’t the first departures of big names. In May, OpenAI co-founder Ilya Sutskever and former security leader Jan Leike announced their departuresand Leike will also join Anthropic.

Leike wrote in a social media post at the time that disagreements with leadership over the company’s priorities drove his decision.

“In recent years, safety culture and processes have taken a back seat to shiny products,” he says. wrote.

An employee who worked for Leike resigned shortly after him, writing in X in September that “OpenAI was structured as a nonprofit, but acted like a for-profit organization.” The employee added: “You shouldn’t believe OpenAI when it promises to do the right thing later.”