OpenAI’s Shocking Structural Overhaul: What It Means for the Future of AI and Why Elon Musk Is Fighting It!
On Friday, OpenAI outlined plans to transform its organizational structure, aiming to create a public benefit corporation (PBC) that will facilitate easier capital raising and remove the constraints imposed by its current nonprofit parent.
Under the proposed changes, OpenAI’s existing for-profit arm will be restructured as a Delaware PBC. This type of corporation is designed to consider societal interests alongside shareholder value. The nonprofit entity will retain a significant interest in the PBC through shares, as determined by independent financial advisors. This move is expected to make the nonprofit one of the most well-resourced in history, according to OpenAI’s blog post.
OpenAI was founded in 2015 as a research-focused nonprofit but later created a for-profit unit in 2019 to secure funding for the costly development of artificial intelligence. The unique structure gave control of the for-profit unit to the nonprofit, which was a point of contention last year when Sam Altman was briefly fired as CEO before being reinstated following employee backlash.
As the pursuit of artificial general intelligence intensifies, OpenAI has been seeking structural changes to attract more investment. The company’s recent $6.6 billion funding round, valuing it at $157 billion, was contingent on its ability to alter its corporate structure and remove profit caps for investors, as reported by Reuters.
A Necessary Step
“We need to raise more capital than anticipated. Investors are eager to support us but require conventional equity and less complex structures at this scale,” OpenAI stated on Friday.
The massive investments of hundreds of billions of dollars in AI development by major companies underscore the scale of resources needed for OpenAI to continue its mission.
By adopting a PBC structure, OpenAI will align itself with competitors such as Anthropic and Elon Musk’s xAI, both of which have successfully raised billions in funding through similar organizational models. Anthropic received an additional $4 billion investment from Amazon last month, while xAI raised around $6 billion in equity financing earlier in December.
Analyst Insights
DA Davidson & Co analyst Gil Luria noted, “The key aspect of this announcement is that the for-profit side of OpenAI will now run and control the company’s operations and business.” Luria emphasized that this change is essential for OpenAI’s ongoing fundraising endeavors, though it does not imply that the company will necessarily go public
Potential Hurdles
However, OpenAI may face challenges in implementing this plan. Elon Musk, an OpenAI co-founder who later left the company and is now one of its most vocal critics, is attempting to block the plan. In August, Musk sued OpenAI and Altman, alleging that the company violated contract provisions by prioritizing profits over the public good in its AI development efforts.
OpenAI recently asked a federal judge to reject Musk’s request and published a series of messages with Musk to argue that he initially supported the for-profit status before leaving the company after failing to secure a majority equity stake and full control.
Additionally, Meta Platforms is urging California’s attorney general to block OpenAI’s planned conversion to a for-profit company, as reported by the Wall Street Journal earlier this month.
