Microsoft is pushing for OpenAI to become a for-profit company! Sam Altman may have more equity

According to the latest report from The Information, Sam Altman recently told some shareholders that OpenAI is considering transforming its governance structure into a for-profit company, where the non-profit board of directors would not have control over the company.

Altman also mentioned that one option the board is considering is to establish a for-profit benefit corporation, a model that competitors like Anthropic and xAI are using.

Transitioning into a Truly For-Profit Company

Last year, after Microsoft invested $13 billion in OpenAI, there was an incident where the board dismissed Altman, leading to internal employee resistance within the for-profit division, which only ended when Altman was reinstated.

It is reported that non-profit companies are legally protected from minority shareholder interference, as otherwise minority shareholders could sue the company for making decisions that do not prioritize shareholder returns.

By transitioning into a for-profit company, the new entity can still maintain a mission similar to the current non-profit OpenAI - to benefit humanity with AI, while also giving investors the opportunity to see returns on their investment of around $14 billion at a faster pace.

Currently, OpenAI is valued at $86 billion, and transitioning into a for-profit company could accelerate an OpenAI IPO; additionally, Altman may have the opportunity to own more shares.

Some existing investors of OpenAI have mentioned that there is little pressure for OpenAI to go public, as it can continue to allow existing employees and others to sell their shares through regular secondary stock offerings, similar to what SpaceX and Stripe have done. Last year, OpenAI conducted two such offerings for employees, raising over $800 million in total.

Microsoft's Influence Behind the Scenes

According to The Information, some Microsoft executives have been inclined for years to transform OpenAI into a mature for-profit company.

One executive mentioned that this structure would allow the software giant to have a greater influence over OpenAI through board seats and shareholder voting rights.

It is reported that the for-profit arm of OpenAI had previously committed to paying a certain share of any profits generated to Microsoft and other investors, with the maximum limit increasing annually. Microsoft receives 75% of the profits from OpenAI before capital investment is repaid, and up to 49% of subsequent profits within a certain limit.

Furthermore, no external investors have a seat on the eight-person board of the non-profit organization, although Microsoft holds an observer seat without voting rights. The new transformation will eliminate the cap on shareholder profits.

Currently, Altman does not hold any equity in the for-profit division of OpenAI, as he wishes to limit the number of board members holding shares. After the transition, Altman may receive a significant amount of equity.

Microsoft and other investors are more eager for Altman to have such equity, as this would reduce Altman's incentive to focus on other projects and invest in other AI companies In addition to Microsoft, investors who have directly invested in OpenAI include the Reid Hoffman Foundation, Khosla Ventures, Y Combinator, Y Combinator partner Paul Buchheit, and the University of Michigan.

Furthermore, Thrive Capital, Sequoia Capital, and Founders Fund have also been purchasing OpenAI shares from early investors and employees for many years