Investors are excited about OpenAI’s nonprofit management model

The knock-on effects can be huge

OpenAI never existed like other generative AI startups – or other startups of the era, for that matter. Its management structure is unique and what led to the sudden ouster of CEO Sam Altman on Friday.

Although it transitioned from a nonprofit to a “capped-profit” company in 2019, OpenAI retains an unusual structure that outlines in uncertain terms what investors can do – and not – to be expected from the leadership of the startup.

For example, returns to OpenAI backers are limited to 100x a first-round investment. That means if an investor puts in $1, for example, they are limited to $100 in total return.

OpenAI’s investors also agree – in theory, at least – to follow the nonprofit mission that guides OpenAI’s commercial efforts. That mission is to achieve artificial general intelligence (AGI), or AI that “can outperform humans in the most valuable jobs in the economy” — but not necessarily make a profit while or after achieving it. Determining exactly when OpenAI achieves AGI is at the board’s sole discretion, and this AGI – whatever form it takes – is exempt from commercial licensing agreements that OpenAI is set up by customers today.

How OpenAI described its operational structure in the days before the turmoil. Image Credits: OpenAI

OpenAI’s dual, mission-driven structure is aspirational, to say the least, inspired by effective altruism and is intended to clearly delineate the company’s profit-making efforts from its more ambitious, humanitarian goals. But investors don’t trust the board to use its power the way it does. Not even many employees, it seems.

Leave a comment