OpenAI restructuring settled! IPO and AI investment wave in sight, but governance structure still controversial.

At the end of 2024, OpenAI, which was still recovering from a brief and chaotic dismissal controversy involving Sam Altman, launched a plan that was originally expected to proceed relatively smoothly - to transform the company into a more traditional for-profit enterprise to attract more investors. However, this transformation quickly encountered resistance. OpenAI co-founder Elon Musk, who later withdrew from the company and founded a competing company, filed a lawsuit in an attempt to stop the restructuring, claiming that it violated the company's original founding principles. The billionaire also attempted to acquire control of OpenAI's non-profit entity but was unsuccessful. Meanwhile, former OpenAI employees and non-profit organization leaders called on regulatory agencies to block the deal. OpenAI spent months in complex negotiations with its largest investor, Microsoft Corporation (MSFT.US), on how the collaboration relationship would change under the new company structure. On Tuesday, approximately a year after the restructuring was initiated, OpenAI announced that the restructuring had been completed after signing a new agreement with Microsoft Corporation and making concessions to state regulatory agencies responsible for reviewing the transaction. Delaware Attorney General Kathy Jennings described it as "a long and intense negotiation." According to reports, OpenAI has completed the restructuring, with its non-profit entity now renamed OpenAI Foundation and holding approximately $130 billion in equity in the for-profit division. The for-profit division of OpenAI has been restructured as a Public Benefit Corporation named OpenAI Group PBC. Under the new structure, the OpenAI Foundation will hold 26% equity, with current and former employees and investors collectively holding 47%. Microsoft Corporation, as the largest shareholder of OpenAI, will receive 27% equity, valued at approximately $135 billion. After the restructuring, although the OpenAI Foundation only holds about 26% equity in OpenAI Group PBC, it has exclusive special voting rights and governance rights, allowing it to appoint all members of the OpenAI Group board of directors and replace directors at any time, ensuring absolute control over the public benefit company. While Microsoft Corporation holds about 27% equity in OpenAI Group PBC, it only has dividend rights and cannot participate in OpenAI's day-to-day decision-making. Although OpenAI made some compromises to facilitate this, the restructuring was still a decisive victory - opening a new phase for the company to invest more funds in building data centers, chips, and talent to support the development of artificial intelligence (AI). Altman stated on Tuesday that OpenAI had committed to investing $1.4 trillion in AI infrastructure and would continue to actively advance in this area. To raise funds, OpenAI needs to raise unprecedented capital through venture capital, debt financing, and ultimately an initial public offering (IPO). Altman stated that an IPO is still the most likely financing path for the company. One of OpenAI's main investors, SoftBank, had previously reserved the right to withdraw billions of dollars if the restructuring was not completed within several months. Other investors may also hesitate to invest due to the complex return mechanisms of the non-profit structure. OpenAI CFO Sarah Friar stated, "We have finally almost become a 'regular company,' that's what I call it internally." Some analysts pointed out that the restructuring would allow OpenAI to "continue fundraising in a simpler way." By simplifying the equity structure and clarifying investor rights, OpenAI completely removed the constraints of the "profit cap" model, allowing shareholders to share in the company's growth dividends according to their shareholding proportions, marking a significant leap towards a mature commercial entity. Concerns remain behind the restructuring - non-profit organizations may struggle to balance profitability. However, despite OpenAI's eagerness to start a new chapter, there are still many unresolved mysteries surrounding the relationship between non-profit organizations and for-profit companies. One of the key questions is to what extent non-profit organizations can influence for-profit entities. In theory, non-profit boards can exert control by appointing or removing for-profit board members. However, at least for now, it may be quite difficult to remove for-profit board members of OpenAI because, except for one person, all non-profit board members also serve on the for-profit board. One of the current non-profit board members, Adam D'Angelo, as well as the chairman Bret Taylor, both run AI companies that use OpenAI software. According to two informed sources, non-profit board members also have no authority to remove executives from OpenAI's for-profit company. This is particularly critical - two years ago, it was a different composition of the non-profit board that fired Altman, leading to company chaos. Orson Aguilar, CEO of the non-profit organization LatinoProsperity, stated, "The current arrangement still does not ensure true independence or accountability to the public." His organization belongs to the EyesOnOpenAI coalition opposing the restructuring, and they "still have serious concerns about who is in control." Additionally, how non-profit organizations will use their substantial resources is currently unclear. Under the new structure, it will hold 26% equity in OpenAI, valued at approximately $130 billion based on the current $500 billion valuation, and will have a warrant: if the for-profit company's stock price increases more than tenfold within 15 years, the non-profit side can receive additional shares. The non-profit organization stated that it plans to initially invest $25 billion to support AI research contributing to human health and to mitigate significant risks posed by AI. However, it has not appointed a CEO or any management personnel yet. Zico Kolter, a non-profit board member of OpenAI, stated, "Now we can deploy capital relatively quickly, which the previous structure was completely not conducive to." "The current architecture is more consistent in ensuring that the non-profit side benefits from the value created by OpenAI." Kolter is the only non-profit board member without voting rights on the for-profit board, retaining only observer status (another similar member will be added within a year of the completion of the restructuring). He also chairs the OpenAI Security and Governance Committee, which has the power to postpone the release of products if they are deemed unsafe. Kolter said, "We want to ensure that the high standards we and OpenAI have set for model safety are actually implemented." "If this is not achieved, we can either discover it early or respond quickly." Furthermore, the relationship between OpenAI and Microsoft Corporation - a key factor in OpenAI's early success - has become more complex. Although Microsoft Corporation has agreed to hold 27% of the shares in the new for-profit entity of OpenAI, the two parties have not defined how Microsoft Corporation will continue to use OpenAI's intellectual property rights. OpenAI stated that an independent group will play a crucial role in determining when OpenAI achieves "Artificial General Intelligence" (AGI). When that moment arrives, Microsoft Corporation will no longer have the right to earn 20% of OpenAI's revenue or continue to share the latest AI research methods. However, it is currently unclear how this group will be selected and approved by both parties, or what the evaluation criteria will be. In the meantime, how Microsoft Corporation - increasingly seen as a competitor to OpenAI - will utilize its access to OpenAI's intellectual property rights (including data centers and chip designs) to serve its own interests remains to be seen. Lastly, Musk apparently does not intend to give up the fight against the restructuring, even if it means overturning the structure afterwards. Musk's lead attorney Marc Toberoff stated, "They pushed forward, blatantly disregarding the judge's wish for this case to be decided by a jury rather than politicians." He added that OpenAI "almost has no right to complain about the difficulties caused by the reversal of the restructuring."