Microsoft is investing billions into OpenAI. It is reported that the deal will be done at a $29B valuation. It is also reported that prior to this round, Microsoft already poured $3B into OpenAI and the deal structure is highly unusual. What Microsoft receives from this strategic investment is not equity but capped future revenue share. Basically, OpenAI will pay $X billions of future profits back to Microsoft in exchange for the $13B(?) investments in total. Microsoft is partnering with OpenAI to integrate ChatGPT into the Bing search and offer OpenAI’s API service through Azure. Strategically, it makes a lot of sense for Microsoft to do this even if they don’t make a lot of money directly from this investment.
According to ChatGPT, OpenAI was initially founded as a non-profit research company in December 2015 by Elon Musk, Sam Altman, Greg Brockman, Ilya Sutskever, Wojciech Zaremba, and John Schulman, with the goal to develop and promote friendly AI in a way that benefits all of humanity. In 2018, the company changed its status to a C-corporation, which is a for-profit company structure. The reason for this change was to enable OpenAI to raise money through venture capital, allowing it to develop its own products and services in addition to its research. It is also worth mentioning that OpenAI has a number of high-profile individuals and organizations who have invested in the company such as Reid Hoffman, Peter Thiel, Mark Zuckerberg, and Elon Musk, among others.
I believe OpenAI was started to advance public good as a non-profit. It made some amazing progress but in order to make even more progress, they need to raise a lot of money to hire AI scientists and to acquire computational power. They decided to reorganize as C-corp makes fundraising more accessible. (One can also cynically interpret the c-corp conversion as a way for a small number of investors to capture value created from the OpenAI.) I could understand this reorganization but the current owner list according to the public information is worrisome. If OpenAI is able to achieve AGI and become a very powerful force to influence humanity, do we really want a bunch of billionaires and Microsoft to be the owners and dictate what they want to do with this powerful technology? It seems OpenAI put in some guard rails to prevent this over-influence with the special deal structure. I would like to urge OpenAI to make a public disclosure on how their ownership structure works so that the amazing technologies don’t just fall into hands for a very small group of already powerful individuals.
Note: ChatGPT is wrong. Open AI was reorganized as a limited partnership.