Is OpenAI being fair to its non-profit? - by Lynette Bye
OpenAI recently secured $6.6 billion from investors — but there’s a catch. In raising the money, the company reportedly promised investors that it would abandon its current corporate structure within two years, becoming a public-benefit corporation instead. This presents a thorny problem: to do so, someone needs to compensate OpenAI’s non-profit, which currently controls the company. Recent reports suggest that OpenAI plans to give the non-profit a stake in the for-profit worth around $37.5 billion. But is that fair?
Legally, “OpenAI” is several interlocking organisations. At the top is a charitable non-profit, whose board of directors oversee everything. At the bottom, a for-profit LLC holds the assets, such as the intellectual property to OpenAI’s models. Investors and employees, rather than owning traditional equity stakes in the company, instead own profit-sharing interests in the LLC. That entitles them to a portion of the LLC’s returns, capped at 100x their original stake. Any profit above that 100x cap flows back to the non-profit.
Assets owned by a charitable non-profit are legally required to serve its charitable purpose. As OpenAI transitions to a traditional for-profit, investors will reportedly get a traditional equity stake, and the profit cap will be removed — in effect taking assets away from the non-profit. To buy those assets for private gain, the buyer needs to pay full market value. In this case, that will reportedly happen by giving the non-profit an equity stake in the for-profit. But while OpenAI as a whole is worth $157 billion, it’s not clear what the value of the non-profit itself is, as we don’t know what exactly it owns. Even valuation experts can’t pinpoint whether the non-profit is owed closer to $1 billion or $100 billion.
