Aditya Soni and Arshee Bajwa
(Reuters) – OpenAI on Friday outlined plans to restructure its structure, saying it would create a public benefit corporation to make it easier to raise capital and remove restrictions imposed on the startup by its current nonprofit parent.
Under the proposed structure, the existing for-profit arm of the maker of ChatGPT will become a Delaware Public Benefit Corporation (PBC) – a company structured to consider the interests of society in addition to shareholder value.
The nonprofit, meanwhile, will have a “significant interest” in PBC in the form of shares as determined by independent financial advisers, OpenAI said in a blog post, adding that it will be one of the “best-resourced nonprofits in history.”
OpenAI started in 2015 as a non-profit organization focused on research, but four years later it created a for-profit unit to provide funding for the high cost of developing artificial intelligence. Its unusual structure gave control of the for-profit unit to the nonprofit and was in focus last year when Sam Altman was fired as CEO only to return days later after an employee outcry.
As the expensive pursuit of artificial general intelligence, or AI that surpasses human intelligence, heats up, OpenAI has been looking for changes to attract even more investment.
Its latest $6.6 billion funding round at a $157 billion valuation hinged on whether the ChatGPT maker could change its corporate structure and remove a cap on profits for investors, Reuters reported.
‘CRITICAL STEP’
“Once again, we need to raise more capital than we envisioned. Investors want to support us, but, at this level of capital, they need conventional equity capital and smaller structured orders,” the Microsoft-backed startup said on Friday.
“The hundreds of billions of dollars that big companies are now investing in AI development shows what it will really take for OpenAI to continue to pursue the mission.”
His plans to create PBC would align the startup with rivals such as Anthropic and Elon Musk-owned xAI that use a similar structure and have recently raised billions in funding.
Anthropic raised an additional $4 billion in investment from existing investor Amazon.com (NASDAQ: ) last month, while xAI raised about $6 billion in capital earlier in December.
“The key to the announcement is that the for-profit side of OpenAI will ‘lead and control OpenAI’s operations and business,'” said Gil Luria, an analyst at DA Davidson & Co.
“This is a key step that the company needs to take in order to continue raising funds,” Luria said, though he added that the move “did not require OpenAI to go public.”
The startup, however, might face some roadblocks in the pipeline.
Musk, the co-founder of OpenAI who later left and is now one of the startup’s most vocal critics, is trying to stop the plan and sued OpenAI and Altman in August. Musk claims that OpenAI violated contractual provisions by putting profit ahead of the public good in an effort to advance AI.
OpenAI earlier this month asked a federal judge to deny Musk’s request and released a slew of messages with Musk saying he initially supported OpenAI’s for-profit status before leaving the company after failing to gain a majority stake and full control .
Meta Platforms (NASDAQ: ) is also calling on California’s attorney general to block OpenAI’s planned conversion to a for-profit company, the Wall Street Journal reported earlier this month.
