OpenAI on Friday outlined plans to revamp its structure, saying it would create a public benefit corporation that would make it easier to raise capital and remove the restrictions imposed on the startup by its current nonprofit parent.
Under the proposed structure, the ChatGPT maker’s existing for-profit arm will become a Delaware public benefit corporation (PBC) — a company that is structured to consider the interests of society in addition to shareholder value.
The nonprofit meanwhile will have a “significant interest” in the PBC in the form of shares as determined by independent financial advisers, OpenAI said in a blogpost, adding that it would be one of the “best-resourced nonprofits in history.”
OpenAI started in 2015 as a research-focused non-profit but created a for-profit unit four years later to secure funding for the high costs of AI development. Its unusual structure gave control of the for-profit unit to the nonprofit and was in focus last year when Sam Altman was fired as CEO only to return days later after employee outrage on the move.
As the expensive pursuit of artificial general intelligence, or AI that surpasses human intelligence, heats up, OpenAI has been looking to make changes to attract ever more investment.
Its latest $6.6 billion funding round at a valuation of $157 billion was contingent on whether the ChatGPT-maker can upend its corporate structure and remove a profit cap for investors, Reuters has reported.
‘Critical step’
“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,” the Microsoft-backed startup said on Friday.
“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.”
Its plans to create a PBC would align the startup with rivals such as Anthropic and Elon Musk-owned xAI that use a similar structure and recently raised billions in funding.
Anthropic garnered another $4 billion investment from existing investor Amazon.com last month, while xAI raised around $6 billion in equity financing earlier in December.
“The key to the announcement is that the for-profit side of OpenAI ‘will run and control OpenAI’s operations and business,'” DA Davidson & Co analyst Gil Luria said.
“This is the critical step the company needs to make in order to continue fund raising,” Luria said, although he added that the move did “not necessitate OpenAI going public.”
The startup could, however, face some hurdles in the plan.
Musk, an OpenAI co-founder who later left and is now one of the startup’s most vocal critics, is trying to stop the plan and in August sued OpenAI and Altman. Musk alleges that OpenAI violated contract provisions by putting profits ahead of the public good in the push to advance AI.
OpenAI earlier this month asked a federal judge to reject Musk’s request and published a trove of messages with Musk to argue that he initially backed for-profit status for OpenAI before walking away from the company after failing to get a majority equity stake and full control.
Meta Platforms is also urging California’s attorney general to block OpenAI’s planned conversion to a for-profit company, the Wall Street Journal reported earlier this month.
Reuters
