OpenAI, which is at least theoretically still a nonprofit company despite its multi-billion-dollar funding and valuation, is now reportedly considering restructuring itself into a for-profit company to make it more attractive to potential investors. The reports of OpenAI considering becoming a for-profit company have been around for quite some time now, and last year Elon Musk mocked the company for becoming a “maximum-profit company effectively controlled by Microsoft.” Here we will discuss the implications of ChatGPT’s parent transforming into a for-profit enterprise.

Reuters first reported that according to sources, OpenAI is considering making its core business into a for-profit benefit corporation and while the OpenAI non-profit will continue to exist and also own a minority stake in the for-profit company, its board won’t control the new for-profit company.

OpenAI Was Founded as a Non-Profit

OpenAI was founded as a non-profit AI research organization in 2015 and among others, Elon Musk donated to the company as a cofounder. The billionaire has since disassociated himself from OpenAI and has started his own AI company X.ai which incidentally raised $6 billion earlier this year which gave the OpenAI competitor a valuation of a mammoth $24 billion.

Musk has often lashed out at OpenAI and last month revived his lawsuit against the company and its CEO Sam Altman alleging the company put profits ahead of the public good which wasn’t its initial goal.

The world’s richest person has good reason to be upset as he donated tens of millions of dollars to OpenAI before it shifted to a non-profit (meaning that he got absolutely nothing for his money while later investors are raking it in).

Meanwhile, as its capital needs increased, OpenAI added the for-profit OpenAI LP entity in 2019 which helped it secure funding from Microsoft which has committed to invest billions of dollars in the company spread over multiple years. However, the nonprofit had full control over the for-profit subsidiary in an unusual structure. The reason OpenAI was structured as a nonprofit in the first place was to create “safe AGI (artificial general intelligence) that is broadly beneficial.”

Why Did OpenAI Felt the Need to Restructure as a For-Profit

OpenAI kept a 100x profit cap for investors which it said was to “incentivize them to research, develop, and deploy AGI in a way that balances commerciality with safety and sustainability, rather than focusing on pure profit-maximization.” This cap was rather ridiculous anyway as it was a massive cap on an already valuable company. For example, Microsoft could return about $1.3 trillion dollars on its $13 billion investment before reaching the cap.

OpenAI has been burning a lot of cash as it develops AI further. The company, which was valued at $80 billion earlier this year, is said to be seeking fresh funds that could value the company at $150 billion.

OpenAI’s CEO Sam Altman believes that the company would need to raise $100 billion as it strives to achieve artificial general intelligence – which is a theoretical AI model with human-like intelligence that can learn and improve itself. If that number sounds outrageous, Altman was also reportedly in talks with global investors to raise $7 trillion to expand the chipmaking facility to meet the growing demand from AI.

OpenAI’s nonprofit has received only $130.5 million in donations until now which is not enough to cover its massive capital needs so the company decided to have a for-profit arm to gain access to more funds but that structure ensured that the non-profit board was in control of the for-profit arm.

To be sure, there is no dearth of investors looking to invest in quality AI companies and BlackRock is looking to raise as much as $100 billion to invest in AI companies, OpenAI’s nonprofit structure could have been a dampener as it seeks funds from across the world.

AI Safety Is a Global Concern

Meanwhile, many have been questioning whether OpenAI would still have safe AI as the core of its business after becoming a for-profit enterprise. AI safety is a pressing issue and governments have been scrambling to come up with enabling guidelines to ensure that the technology does not go rogue while not scuttling innovation at the same time given the many advantages that AI brings to the table.

After he backed the failed attempt by the board to oust OpenAI’s CEO Sam Altman last year, the company’s co-founder Ilya Sutskever left the company earlier this year and later founded his AI startup named Safe Superintelligence (SSI Inc.). Sutskever and many other AI critics have multiple genuine concerns amid the advancements of AI. It threatens to harm privacy in the short term and, in the long term, it could take over the world.

If OpenAI transforms into a for-profit company fears about AI safety would only compound. In its response to Reuters, OpenAI said, “We remain focused on building AI that benefits everyone, and we’re working with our board to ensure that we’re best positioned to succeed in our mission. The non-profit is core to our mission and will continue to exist.”

However, the company has seen another exodus of top executives amid reports of its restructuring into a for-profit company. OpenAI Chief Technology Officer Mira Murati is leaving the company after spending six and a half years at the AI giant. In her post on X, she said that she was stepping down “to create the time and space to do my own exploration.” OpenAI’s research chief Bob McGrew and a research vice president Barret Zoph have also resigned from the company.

Sam Altman’s Net Worth Looks Set to Explode

Meanwhile, Sam Altman, who was previously estimated to have a net worth of around $2 billion, is set to get a lot richer if OpenAI becomes a for-profit enterprise. The company is reportedly considering giving Altman – who did not have any equity stake in the company till now – a 7% stake in the company. Based on its $150 billion valuation, that would come out to $10.5 billion.

According to the Tax Foundation, with 1.8 million organizations, the tax-exempt nonprofit economy is around 15% of the US economy, and many utilities, universities, and hospitals work as nonprofits. There have however been examples of companies transforming from nonprofit to for-profit.

For instance, in 2011, the travel website CouchSurfing, which allowed users to stay for free in other’s homes, converted from a non-profit to a for-profit. Several hospitals in the US and other developed countries have also transformed into for-profits.

However, it’s not common for companies to convert into a for-profit. It’s tough to find an example of a multi-billion-dollar tech company deciding to change its status from a non-profit to a for-profit, wiping away any pretense of working towards a common good. It would be set up as a normal business with the goal of making profits and adding value for all stakeholders, including the investors who provide them capital.

Is OpenAI Becoming For-Profit Good?

Meanwhile, OpenAI’s conversion to a for-profit won’t be an overnight exercise and would first need approval from its non-profit board which currently has nine members including Altman. After the approval, it would need to go through the regulatory process to convert into a for-profit.

While becoming a for-profit enterprise would mean OpenAI would be able to attract even more capital, AI safety hawks would have yet another reason to worry as the AI behemoth gives away its pretense of existing just for the social good.