It’s sometimes forgotten, but OpenAI, the creator of ChatGPT, is not quite a non-profit organization and not quite a company. When it was formed in 2015, it was a non-profit organization that operated on donations. Then, in 2019, this structure was revised. In an interview recently published by Harvard Business School, Sam Altman recalls that this change was essential to raise more money to develop AI. OpenAI boss explains that at the time they underestimated the capital needs and admits that it is now impossible “to be at the forefront of the search for scale” if you are a non-profit organization.
OpenAI has two components. On the one hand, there is the non-profit organization, which controls the activities, through its board of directors. And on the other, there is a for-profit subsidiary, which generates income, and which is capable of raising funds. But this subsidiary does not operate like other companies, like SpaceX, for example. Indeed, OpenAI operates on a “Capped-profit” principle. In addition to the fact that its investors do not have decision-making power (decisions are made by the board of directors of the non-profit branch), they also have capped returns on investment.
Why a ceiling?
“The for-profit company’s equity structure would have caps that limit the maximum financial return for investors and employees to incentivize them to research, develop, and deploy AGI in a manner that balances the aspect business with safety and sustainability, rather than focusing on outright profit maximization”we read on the OpenAI website. Another rule of this structure: the members of the board of directors do not have shares in OpenAI. According to this, even Sam Altman does not have a direct stake in the creator of ChatGPT. “He only has an indirect interest, through a Y Combinator investment fund which made a small investment in OpenAI before he worked there full time”specifies OpenAI.
An organization worth $157 billion
In any case, OpenAI’s plan worked since, thanks to its hybrid structure, it was able to raise billions of dollars. In October, it raised $6.6 billion, which brought its valuation to $157 billion. And today, OpenAI is one of the most valuable “startups” in the world, alongside SpaceX and Bytedance, the Chinese company which offers the social network TikTok.
In September, rumors swirled about a possible structural change within OpenAI and the possibility of it becoming a little more like a real company. In response to these rumors, here is what an OpenAI representative said, according to a Reuters article: “We remain focused on building AI that benefits everyone, and we are working with our Board of Directors to ensure we are best positioned to succeed in our mission. The non-profit organization is at the heart of our mission and will continue to exist.”
Unlike publicly traded companies, OpenAI is not required to report its financial results every quarter. However, according to rumors, despite the success of ChatGPT, it still does not make profits, while the training and operation of its AI models requires significant computing resources and a lot of energy.
- OpenAI was created as a non-profit organization in 2015, but it adopted a new structure in 2019, in order to raise more funds
- The creator of ChatGPT is still controlled by a nonprofit organization, but uses a for-profit subsidiary to develop and market its technologies
- This for-profit subsidiary can raise funds, but its investors have capped profits (the “capped-profit” principle) and have no decision-making power.
