- in 2015, OpenAI was founded as a Delaware nonprofit
- in 2017, OpenAI discovered the scaling laws and realized they needed far more compute (and thus money) than they had initially anticipated
- that discovery precipitated a series of negotiations between the founders on how to restructure OpenAI to raise more money for compute, ultimately resulting in Musk’s departure when the other founders would not give him control
- in 2018, OpenAI attempted to dramatically increase its fundraising despite Elon ending his contributions, but raised only $50M of its $100M goal
- in 2019, OpenAI created a capped-profit subsidiary in order to attract funding from commercial entities
- the nonprofit hired an independent assessor to value its IP, and then transferred that IP to the for-profit for fair value (around $60 million in 2019)
- the OpenAI nonprofit received a right to 100x capped return on its IP investment, or $6B, once the for-profit began making a profit. The nonprofit also received the right to the residual profit after all future investors reached their caps
- in 2019, OpenAI’s capped-profit received $1B in investment from Microsoft. OpenAI later received $2B from Microsoft in 2021 and $10B in 2023 as compute scaling continued
- Microsoft received a cap of 20x on its $1B investment, and 6x on its $2B and $10B investments, for a total of $92B target redemption
- in 2025, OpenAI’s for-profit entity recapitalized from a capped-profit entity with residuals flowing to the nonprofit to a traditional public benefit corporation with traditional equity
- in exchange for the residual (and 100x profit cap on the original $60M transfer) the nonprofit received a 26% equity stake in the for-profit. That stake is currently valued at around $200B
All of the above is from the record in Musk v. Altman, thanks to which we now have all the details. The upshot for the nonprofit is that it transferred IP worth around $60M in 2019 for rights to $6B in future profit, and then ended up with $200B in equity after the recapitalization. I see a lot of people in this thread assuming that the nonprofit no longer exists, which is not true.
- in 2019, OpenAI created a capped-profit subsidiary in order to attract funding from commercial entities
Particularly if it creates a conflict of interest for anyone making decisions on behalf of the nonprofit
Also curious what conflicts of interest you have in mind.
- in 2025, OpenAI’s for-profit entity recapitalized from a capped-profit entity with residuals flowing to the nonprofit to a traditional public benefit corporation with traditional equity
This is the egregious part. Before full for profit conversion it was worth $300B. Then after $850B.
A true fiduciary would set an auction and that would set the price for for profit valuation. And then all existing investors would keep the value of their positions, but would be diluted because capped profit is worth much less than unlimited profit and residuals.
But, they sold it to themselves for a bargain basement price. The nonprofit lost out on $300B or so. Maybe more.
It was not an arm’s length transaction. It was self-dealing.
Appreciated!
IRS requires nonprofits to pay taxes on “unrelated business income” and spinning it off to a for-profit subsidiary is the least risky way of managing that revenue.
Not everything is a business.
OpenAI wasn’t, until it was.
Other than researchers, nobody from big tech would ever see themselves wanting to work at a charity / non-profit. The moment the VCs came into the picture then all the grifters poured in and AGI meant IPO.
> You can just use a favorable structure until it’s time to enrich yourself.
Maybe that diary was made out of teflon.
Are you saying researchers are less interested in quality of life than other people? If this was true, frontier labs wouldn’t need to offer 7 digit compensation packages to their researchers.
It should also not surprise you that the Epstein files have not been released.
Everything is possible and not possible in a corrupted system.
Western countries have been utterly strangled by nonprofits. Governments fund them with tax money in order to lobby themselves for legislation that financially benefits individuals in government and their donors. Obama even expanded the rules in the US to allow the government to unconstitutionally fund religious groups to accomplish functions that belong in government.
They should all be either reformed so that their internal bylaws and compensation are strictly regulated or probably preferably, they should simply be destroyed. If you only pay taxes on your profits (and we get rid of legal vehicles to hide profits) and your employees are obligated to pay taxes on their incomes, there's no need for a nonprofit status. If nonprofits want to engage in business (religions included), let them pay taxes. If they engage in charity, they won't have anything to tax.
To expand, there are two major problems with nonprofits in Western nations these days:
1. Governments use them as a way to do things that they themselves are not allowed to do ("it's private charities that do this!", ignoring the fact that the charities get >90% of their revenue from government grants)
2. Like you mentioned, the government grants to nonprofit back to politicians' campaign funds pipeline. Utterly egregious.
> Obama even expanded the rules in the US to allow the government to unconstitutionally fund religious groups to accomplish functions that belong in government
I wasn't aware of this being a big concern; more the other way around, like in my point 1.
Another reform I would make would be around independent governance and removing donor control of charities to reduce the number of sham Rich Guy foundations.
This one is tough. I mean, look at the Clinton Foundation. One reason to believe that $1 there is more effective than somewhere else is _because_ the Clinton’s are closely involved.
Of course, you get massive donations there because people want to influence the Clintons and/or _through_ the Clintons. Would those people / states donate otherwise? Would they donate to _better_ organizations? Maybe! Maybe not!
* Also I’m not saying the Clinton Foundation is more/less effective. You’re almost certainly better donating to GiveDirectly, but it’s not on its face ridiculous to think that they, specifically, could effect a _different_ type of change than others would have access to/influence over.
