Breaking: OpenAI Gives up on Becoming a For Profit Company

Wow

This is a bit complex so I have to give some background.

OpenAI was founded as a non-profit for the good of all mankind to create AI. Musk was a founder who donated around $50mm.

Musk and Sam Altman had some disagreements, and Musk went on his way and Altman spun out a for-profit corporation that has attracted tens of billions of dollars in investment, most recently by Softbank in a $48 billion round.

As recently as yesterday, OpenAI’s plan was to detach itself from the non-profit and go for broke for as high a valuation as possible.

Many people, including myself and Musk, took issue with this. But Musk most of all since they effectively bootstrapped a company off of his donation and never gave him any equity.

So Musk sued. Last week, it was ruled that that suit has some merit and may move forward.

Meanwhile, in order to legally convert to a for profit, OpenAI essentially had to buy itself from the non-profit. There were rumors OpenAI was valuing itself somewhere around $40 billion for this transaction, far below the value it was raising capital at. This always seemed highly illegal to me.

So Musk made an offer to purchase OpenAI for $98 billion and said they’d match any higher offer. This effectively made it too expensive for OpenAI to convert to a for profit since it set a price floor and meant they would have a bidding war.

And most of that came to an abrupt end a few hours ago.

OpenAI has announced plans they will abandon becoming a for profit entity and instead convert into a B corp, which means everything they do has to be in the public’s interest and not just for profit.

This is complete and total capitulation to Musk. I’ve written before he has the better hand in this game.

Most importantly, in their blog post, Sam Altman says this decision was made after discussions with the Attorneys General of Delaware and California.

I.e. they were told they can’t do what they wanted to.

I actually applaud OpenAI for not going through with it and just dealing with the aftermath. It destroys a huge amount of value when they eventually have a liquidity event as a PBC instead of a c corp.

Developing…