OpenAI can’t have its money both ways

Sam Altman’s reputation for spin was out in full force this week in a published “letter to employees” announcing that he was abandoning plans to turn OpenAI into a for-profit company. Instead, it will “continue to be overseen and controlled” by its nonprofit board.

Hooray for humans, you might think, since that board has a unique fiduciary duty to all people, with a mission to “advance digital intelligence in the way that is most likely to benefit humanity as a whole.” But his investors may be cheering the most, as OpenAI also appears to be removing its 100x cap on profits. In a Monday blog post, the company stated:

“Instead of our current complex capped-profit structure—which made sense when it looked like there might be one dominant AGI effort but doesn’t in a world of many great AGI companies—we are moving to a normal capital structure where everyone has stock. This is not a sale, but a change of structure to something simpler.”

A “normal capital structure” almost certainly refers to one where investors can get unlimited returns. This is the promise that drives so many of the big swings in Silicon Valley.

If OpenAI could one day become a trillion-dollar company to rival the Magnificent Seven, then its investors certainly won’t want their returns capped at 100x. (The company’s latest valuation of $300 billion may well put some of its earliest investors within throwing distance of that limit.)

They’ll want to echo the success of other venture capital investors who hit the jackpot in the past, like Lightspeed Ventures Partners, who saw their $8 million early investment in Snap Inc. grow to $2 billion (a 250x return) when the social media company went public in 2017.

OpenAI has long been aiming to build artificial general intelligence (AGI), a theoretical threshold where AI can surpass humans in their ability to show generalized intelligence, and Altman has said that will create “trillions” of dollars of new wealth for the world (and presumably for the company too).

One investor who has embraced that vision is Softbank Group Corp. Chief Executive Officer Masayoshi Son, whose late entrance to OpenAI in March at a high valuation makes it harder to see him getting a 100x return on the $30 billion he’s investing in the company.

Yet Son, whose ambitions rank among the most galactic of tech billionaires, is likely holding hope for magnificent returns. In an interview with Bloomberg Television late last year, Son said that four companies—the “new GAFA”—were going to produce trillion-dollar profits from AI, and he wanted to be one of them.

Early investors like Khosla Ventures, Infosys Ltd., and Peter Thiel stand to benefit even more from the lifted cap if OpenAI can significantly grow its profit. Microsoft Corp., one of OpenAI’s earliest and biggest investors, has yet to give its blessing to OpenAI’s restructuring plans but would be an obvious beneficiary too.

Not once did Altman mention Elon Musk in his letter, but OpenAI’s estranged billionaire co-founder was undeniably a background force in Altman’s decision. Musk has sued OpenAI over its transition away from being a nonprofit, which he originally named with Altman to act as a counterweight to DeepMind, which he feared was building AGI that would be controlled by Google, and to carry out independent AI research for the public good.

Recently, a judge rejected Musk’s request to stop OpenAI from becoming a for-profit but also allowed other parts of his lawsuit to go ahead. OpenAI has said that Musk, who tried to buy OpenAI earlier this year for $97.4 billion, was trying to slow its progress in order to benefit his own startup, xAI.

Musk’s lead lawyer in the suit called OpenAI’s latest announcement a “transparent dodge” that skirted around the core issue of transferring charitable assets “for the benefit of private persons,” since OpenAI’s original benefactors made donations and not investments into the company.

Musk may have been motivated by hubris, but he’s also right. Altman’s company has stepped away from its original nonprofit mission, first by proposing to restructure as a capped-profit company and now by lifting the cap on investors so that it is far more incentivized to maximize profits.

There’s nothing wrong with the latter, but there is something distasteful about pursuing it under the guise of being a non-profit organization. It will surely be much harder now to prioritize “benefiting all of humanity” over shareholder returns.

There’s every reason now for OpenAI, under the pressure of investor expectations, to deploy AI systems more quickly and without the due caution for safety, security and fairness that such technology deserves. Altman has changed the lipstick, but the pig looks the same.

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