Non-profit or for-profit? Atlman’s latest idea for OpenAI isn’t a relief

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."

Also Read: OpenAI’s for-profit pivot is not surprising

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 are unlikely to 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, which saw its $8 million early investment in Snap [parent company of Snapchat] grow to $2 billion (a 250x return) when the social media company went public in 2017.

OpenAI has long aimed to build artificial general intelligence (AGI), a theoretical threshold beyond which 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 CEO Masayoshi Son, whose late entry 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 out hope for magnificent returns. In an interview with Bloomberg Television late last year, Son said that four companies—the “new GAFA" [Google, Apple, Facebook (now Meta) and Amazon]—were going to produce trillion-dollar profits from AI. And he wanted some of it.

Also Read: OpenAI and the Altman ouster attempt: Corporate governance gone wrong?

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

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

OpenAI has said that Musk, who tried to buy OpenAI earlier this year for $97.4 billion, was trying to slow its progress for the benefit of his own startup, xAI. Musk’s lead lawyer for the lawsuit called OpenAI’s latest announcement a “transparent dodge" that skirted the core issue of transferring charitable assets “for the benefit of private persons," since OpenAI’s original benefactors had made donations to the company and not invested in it.

Also Read: Musk versus Altman: Get set for Act II of a Shakespearean drama

Musk may have been motivated by hubris, but he’s also right. Altman’s company has stepped away from its original non-profit mission, first by proposing to restructure it as a capped-profit company and now by lifting the cap on what investors can earn so that it is far more heavily 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 be much harder now to prioritize “benefitting 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. ©Bloomberg

The author is a Bloomberg Opinion columnist covering technology.