OpenAI needs “more capital than we imagined”, it turns to profit

OpenAI said on Friday that as it moves towards a new for-profit structure in 2025, the company will create a public benefit corporation to oversee business operations, removing some of its nonprofit restrictions and allowing it to function more like and a high-growth startup.

“The hundreds of billions of dollars that large companies are now investing in AI development show what it really takes for OpenAI to continue following the mission,” the OpenAI board wrote in the post. “We again need to raise more capital than we imagined. Investors want to support us, but, at this scale of capital, they need conventional equity and less structural bespokeness.”

The pressure on OpenAI is related to its $157 billion valuation, achieved in the two years since the company launched its viral chatbot, ChatGPT, and started the boom in generative artificial intelligence. OpenAI closed its last round of $6.6 billion in Octoberpreparing to compete aggressively by Elon Musk xAI and also Microsoft, Google, Amazon and Anthropic in a market that is expected to exceed $1 trillion in revenue over a decade.

Developing the large language models at the heart of ChatGPT and other generative AI products requires continued investment in high-powered processors, largely provided by Nvidiaand cloud infrastructure, which OpenAI largely receives from top backer Microsoft.

OpenAI expects about $5 billion in losses on $3.7 billion in revenue this year, CNBC said confirmed in September. Those numbers are rising fast.

By transforming into a Delaware PBC “with ordinary shares of stock,” OpenAI says it can pursue commercial operations, while separately hiring staff for its nonprofit arm and allowing that wing to take on charitable activities in health, education and science.

The nonprofit will have a “significant interest” in the PBC “at a fair valuation determined by independent financial advisors,” OpenAI wrote.

The complicated structure of OpenAI as it exists today is the result of its creation as a nonprofit in 2015. It was founded by CEO Sam Altman, Musk and others as a research laboratory focused on intelligence artificial intelligence, or AGI, which was a completely futuristic concept at the time.

In 2019, OpenAI aims to transition from its role as a single research laboratory in the hope of functioning more like a startup, so it has created a capped profit model, with the non-profit still controlling the entity. general

“Our current structure does not allow the Board to directly consider the interests of those who will finance the mission and does not allow the non-profit to easily do more than control the profit,” OpenAI wrote in the post of Friday.

OpenAI added that the change “allows us to raise the necessary capital with conventional terms like our competitors.”

OpenAI’s restructuring efforts face some major obstacles. The most significant is Musk, who is in the middle of a a heated legal battle with Altman that could have a significant impact on the future of the company.

In recent months, Musk has sued OpenAI and asked a court to prevent the company from converting into a for-profit corporation from a non-profit. In posts on X, he described that effort as a “total scam” and claimed that “OpenAI is evil.” Earlier this month, OpenAI applauded, accusing that in 2017 Musk “not only wanted, but really created, a profit” to serve as the new proposed structure of the company.

In addition to its face-off with Musk, OpenAI has dealt with an outflow of high-level talent, due in part to concerns that the company has focused on getting commercial products to market at the expense of security. .

At the end of September, Mira Murati, Chief Technology Officer of OpenAI, announced that he was going to do it leave the company after 6 and a half years. That same day, chief research officer Bob McGrew and Barret Zoph, a research vice president, also announced they were leaving. A month earlier, co-founder John Schulman said he is leaving for rival startup Anthropic.

Altman said during a September interview at Italy Tech Week that the recent executive departures were not related to the company’s potential restructuring: “We have thought about this – our board has – for almost a year independently, while we think to what we need to achieve at our next stage,” he said.

Those weren’t the first big-name exits. In May, OpenAI co-founder Ilya Sutskever and former security chief Jan Leike they announced their departurewith Leike also joining Anthropic.

Leike wrote in a social media post at the time that disagreements with management over the company’s priorities drove his decision.

“In recent years, culture and security processes have taken a back seat to shiny products,” he said he wrote.

An employee, who worked under Leike, left shortly after him, he writes on X in September that “OpenAI was structured as a non-profit, but acted as a for-profit.” The employee added: “You shouldn’t believe OpenAI when it promises to do the right thing later.”