OpenAI’s restructuring gives nonprofit parent $100bn stake

Microsoft and OpenAI have signed a non-binding agreement outlining the next phase of their partnership.

OpenAI is moving forward with its restructuring plans, announcing that it’s nonprofit arm will hold an equity stake exceeding $100bn in the resulting business.

According to the Financial Times, this comes to around 20pc to 30pc of the restructured business. Estimates suggest that OpenAI’s valuation is around $500bn.

The AI behemoth, which was formed as a nonprofit in 2015, announced plans to restructure into a public benefit corporation (PBC) last September. Although, it backed down from its plan earlier this year, announcing instead that the nonprofit will retain control of the company.

OpenAI is going ahead with the new plan, announcing that its nonprofit will control the PBC and share in its profits.

The nonprofit’s $100bn equity stake makes it “one of the most well-resourced philanthropic organisations in the world”, the company said.

Furthermore, Microsoft and OpenAI announced that they have signed a non-binding memorandum of understanding for “the next phase” of its partnership. The two companies are “actively working to finalise contractual terms”, they said in a joint statement.

Microsoft has invested more than $13bn into OpenAI, and according to the Financial Times, Microsoft is expected to take around 30pc stake of the company. The publication further added that the contract is expected to determine Microsoft’s access to OpenAI’s revenue and intellectual property.

The recapitalisation will allow the company to raise further capital, OpenAI added. Earlier this year, SoftBank invested $30bn in the company, with $10bn of the funds hinging on its ability to complete the for-profit transformation.

The company has also been on a spending spree to grow its capacity, with reports suggesting that it has signed a $300bn deal with Oracle for its cloud computing, a $10bn deal with Broadcom to make custom AI chips and a massive new data centre in India.

CEO Sam Altman said that OpenAI will not generate profit until 2029 and expects to lose around $44bn until it does so.

Elon Musk, one of OpenAI’s co-founders and a direct competitor to the AI company, filed a suit last year alleging that OpenAI did not stick to its original objective of developing AI for the benefit of humanity. He later named Microsoft as a defendant in the case.

In February, Musk made an unsolicited bid to purchase the nonprofit that controls OpenAI for almost $100bn. Although days later, a lawyer for Musk said that he will withdraw the offer if OpenAI’s board of directors agree to stop the planned conversion to a for-profit company.

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OpenAI CEO Sam Altman at the World Economic Forum 2024. Image: World Economic Forum/Benedikt von Loebell via Flickr (CC BY-NC-SA 2.0)