OpenAI outlines a new for-profit structure to stay ahead in the costly AI competition

By Aditya Soni and Arsheeya Bajwa

(Reuters) – OpenAI on Friday outlined plans to restructure its structure, saying it would create a nonprofit corporation that would make it easier to raise capital and remove restrictions imposed on the startup by its current nonprofit parent.

Under the proposed structure, ChatGPT maker’s existing for-profit arm will become a Delaware Public Benefit Corporation (PBC) – a company structured to take into account the interests of the community in addition to shareholder value.

The nonprofit will now have a “significant interest” in the PBC in the form of shares as determined by independent financial advisors, OpenAI said in a blog post, adding that it is one of the “best-resourced nonprofits in the world.” History” is about.

OpenAI started as a research-focused non-profit organization in 2015, but four years later created a for-profit entity to ensure funding for the high costs of AI development. Its unusual structure gave the nonprofit organization control of the for-profit entity and was in focus last year when Sam Altman was fired as CEO, only to return days later after employee outrage over the move.

As the costly pursuit of artificial general intelligence, or AI, that surpasses human intelligence grows, OpenAI is trying to make changes to attract more and more investment.

As Reuters reported, its latest $6.6 billion funding round at a $157 billion valuation hinged on whether the ChatGPT maker can shake up its corporate structure and remove a profit cap for investors.

“CRITICAL STEP”

“We once again have to raise more capital than we imagined. Investors want to support us, but with this capital size they need conventional equity and less structural standards,” said the Microsoft-backed startup on Friday.

“The hundreds of billions of dollars that major companies are now investing in AI development demonstrate what is truly needed for OpenAI to continue pursuing this mission.”

His plans to form a PBC would bring the startup in line with rivals such as Elon Musk-owned Anthropic and xAI, which use a similar structure and have recently raised billions in funding.

Anthropic received another $4 billion investment from existing investor Amazon.com last month, while xAI raised around $6 billion in equity financing in early December.

“The key to the announcement is that the for-profit side of OpenAI will ‘direct and control the operations and business of OpenAI,'” said Gil Luria, an analyst at DA Davidson & Co.

“This is the critical step the company must take to continue fundraising,” Luria said, but added that the move “did not require OpenAI to go public.”

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