OpenAI Group PBC
The pioneering artificial intelligence company, OpenAI, maker of the popular ChatGPT, has announced a significant corporate restructuring alongside a new agreement with its primary investor and technology partner, Microsoft.
The core of this change is the metamorphosis of OpenAI's for-profit entity into a Public Benefit Corporation (PBC), now called OpenAI Group PBC, which is controlled by the original non-profit organization, now known as the OpenAI Foundation. This Foundation maintains the company's foundational mission: "to ensure that artificial general intelligence (AGI) benefits all of humanity," and uses its stake in the PBC’s financial success to further its philanthropic work.
OpenAI CEO Sam Altman was very clear in the live broadcast about the reason for this restructuring: the massive need for capital to finance their ambitious plans. Altman indicated that an Initial Public Offering (IPO) is the most likely path for the company's future, given the amount of money required to train and develop AI systems.
Altman and Chief Scientist Jakub Pachocki's plan is to transform OpenAI from a product company into a platform that allows third parties to build their own tools, services, and businesses on top of its technology. This ambition has been enthusiastically received by the market, with figures like Nvidia CEO Jensen Huang suggesting that an OpenAI IPO could be "one of the most successful public offerings in history."
The agreement announced on Tuesday addresses and resolves tensions that arose between Microsoft and OpenAI as ChatGPT exploded in popularity. Previous restrictions, in place since the 2019 agreement, limited OpenAI's ability to raise funds from external investors and secure computing contracts beyond Microsoft. The exclusive reliance on Microsoft for computing resources was a major source of friction.
The restructuring consolidates Sam Altman's power and gives him greater latitude to close deals, raise funds, and operate the new OpenAI Group PBC more like a traditional company. Interestingly, Altman will not receive an equity stake in the restructured company.
Despite the changes, Microsoft remains a central player in OpenAI's future:
- Microsoft will retain a significant 27% stake in OpenAI Group PBC. This stake is valued at approximately $135 billion, implying that Microsoft's $13.8 billion investment has generated a nearly 10-fold return.
- The massive cloud computing contract will intertwine the two companies until at least 2032.
- Furthermore, OpenAI will continue to share about 20% of its revenue with Microsoft for the next few years.
- The original 2019 agreement was tied to OpenAI achieving Artificial General Intelligence. The new agreement requires an independent panel to verify OpenAI’s claims regarding the achievement of AGI, at which point the revenue-sharing agreement is expected to be terminated. Under the new terms,
- Microsoft will no longer have the right of first refusal to be OpenAI's sole computing provider, nor will it have rights over any consumer hardware OpenAI might produce.
The market reacted positively to the announcement, with Microsoft shares rising 2%, once again pushing its market value above $4 trillion.
The OpenAI Foundation (the controlling non-profit organization) becomes one of the most well-resourced philanthropic organizations in history, with its stake in the PBC valued at approximately $130 billion. The greater OpenAI's success as a company, the higher the value of this stake, which will be used to fund its mission.
The OpenAI Foundation will initially focus on a $25 billion commitment in two key areas for humanity.
- First, Health and disease cure, by funding initiatives to accelerate medical breakthroughs, such as the creation of open-source, state-of-the-art health datasets and funding for scientists. Second,
- Technical solutions for AI resilience, by allocating resources to support practical technical solutions to maximize the benefits of AI and minimize its risks, building a "resilience layer" similar to cybersecurity for the internet.
The recapitalization maintains a strong focus on the company's mission in its governance, ensuring that commercial success and the public benefit mission move forward together. This move, which was completed after constructive dialogue with the Attorneys General of California and Delaware, allows the non-profit organization direct access to significant resources before the AGI milestone, enabling OpenAI to continue driving AI forward with an updated corporate structure to ensure that progress benefits everyone.
