OpenAI Gives Details On For-Profit Shift

OpenAI has given details on its planned move to a for-profit structure, amidst pressure from investors to remove a current cap on profits.

The move will involve the creation of a public benefit corporation incorporated in Delaware to oversee commercial operations, allowing it to “raise more capital than we’d imagined” and giving it a structure comparable to those of competitors, OpenAI said in a blog post.

“The hundreds of billions of dollars that major companies are now investing into AI development show what it will really take for OpenAI to continue pursuing the mission,” the company’s board wrote in the post.

“We once again need to raise more capital than we’d imagined. Investors want to back us but, at this scale of capital, need conventional equity and less structural bespokeness.”

Public-benefit corporation

The Delaware PBC will have “ordinary shares of stock” allowing it to pursue commercial operations while separately hiring staff for its nonprofit arm for charitable activities in health care, education and science, OpenAI said.

The nonprofit will have a “significant interest” in the PBC “at a fair valuation determined by independent financial advisors”, the company said.

“Our current structure does not allow the Board to directly consider the interests of those who would finance the mission and does not enable the nonprofit to easily do more than control the for-profit,” the company said.

It said the change would “enable us to raise the necessary capital with conventional terms like our competitors”.

OpenAI’s recent $6.6 billion (£5.3bn) investment round, valuing it at more than $150bn, is contingent on the company’s removal of a profit cap within two years, according to reports.

The company, which launched ChatGPT two years ago, is competing with Elon Musk’s xAI, OpenAI’s own major backer Microsoft, Google, Amazon, Anthropic and others for investors’ funds in a highly capital-intensive industry.

OpenAI expects some $5bn in losses on $3.7bn this year.

Complex structure

The shift to a for-profit structure from its current complex arrangement faces challenges including a lawsuit from Elon Musk, a co-founder of OpenAI, who has sued to stop the move.

The company is also facing the departures of many of its co-founders and top-level researchers, including former chief technology officer Mira Murati, research chief Bob McGrew, research vice president Barret Zoph and co-founder John Schulman, who have all left the company this year.

Suchir Balaji, an engineer who worked at OpenAI for nearly four years before leaving the company in August, publicly criticised its practices with regard to copyright law and said he would try to testify in legal cases targeting the company.

Balaji passed away in late November in an apparent suicide, San Francisco authorities disclosed earlier this month, a claim disputed by his parents.