By OpenAI is considering transitioning from a nonprofit into a for-profit company, and its deep-pocketed benefactor, Microsoft (MSFT), has a lot to gain if the ChatGPT developer gets the green light to act more like a startup.
“Anything that frees up OpenAI to focus on profit is likely to benefit Microsoft’s investment in the company,” said Sarah Kreps, director of the Tech Policy Institute in the Brooks School of Public Policy at Cornell University.
A reconfigured business structure would give Microsoft an opportunity to renegotiate its already generous profit cap, as well as discard a provision that denies Microsoft an interest in OpenAI-created general artificial intelligence (GAI), according to another observer.
“[OpenAI] is clearly saying that the nonprofit will no longer be in control, so presumably that means Microsoft and other investors will have more say about what OpenAI does,” said Rose Chan Loui, founding executive director of the University of California Los Angeles’s Lowell Milken Center for Philanthropy and Nonprofits.
What OpenAI is expected to do as part of its transition is register as a public benefit corporation.
Such entities are like traditional corporations but with more freedom to spend on civically minded initiatives, according to Rick Alexander, a veteran corporate structuring lawyer and founder of the Shareholder Commons,
“It’s a permission structure,” Alexander said.
Other public benefit corporations include Elon Musk’s xAI, Warby Parker (WRBY), Allbirds (BIRD), Lemonade (LMND), and Etsy (ETSY).
And based on the success of Musk’s xAI, OpenAI could benefit handsomely from the change. In May, xAI raised $6 billion.
“This type of transition can generate considerable investor interest quickly,” Kreps said. “This is such a capital-intensive industry, so anything OpenAI can do to attract investment will act as a positive feedback loop and accelerate its advantages.”
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.
Email Daniel Howley at [email protected]. Follow him on Twitter at @DanielHowley.
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