OpenAI's transformation into a profitable company faces a "roadblock": how to price Microsoft's shares?
Microsoft's equity ratio as the largest investor is a key focus. This move means that Microsoft will give up its position as the exclusive cloud service provider for OpenAI, but will retain the right of first refusal. Microsoft stated that several "key elements" of its collaboration with OpenAI will continue until the end of 2030, at which point their current deal will conclude
OpenAI plans to transform into a for-profit company but may face significant challenges, with Microsoft's share pricing being a major issue.
According to media reports on Friday, OpenAI is engaged in complex negotiations aimed at converting the company into a for-profit entity. The company's board is working to determine the equity value of Microsoft in the new company while also discussing valuing its newly established charitable organization at $30 billion.
Since September of last year, OpenAI has been discussing a restructuring that would split the startup into two. Its non-profit arm, which carries OpenAI's original mission of "benefiting humanity," will receive shares in the newly established Public Benefit Corporation (PBC).
According to three individuals familiar with the negotiations, the valuation of the non-profit arm is approximately $30 billion, but the final price has yet to be determined. One individual added that most of the value will be realized in the form of equity in the PBC, with the remainder paid in cash.
Microsoft's equity stake as the largest investor is a key focus of the negotiations, and other considerations, such as how much equity CEO Sam Altman will receive in the new company, also need to be resolved.
This transformation aims to allow OpenAI to raise hundreds of billions of dollars from investors, which the startup believes is crucial for staying ahead of competitors in developing cutting-edge AI models. However, it also represents a significant departure for OpenAI as a non-profit organization and is a highly complex move with almost no legal precedent.
OpenAI reached a two-year deadline with investors in September to complete the conversion as part of its latest funding round. If the changes are not completed by the deadline, investors can reclaim part of the $6.6 billion they invested in the company.
This move means that Microsoft will relinquish its status as OpenAI's exclusive cloud service provider but retain a right of first refusal. Microsoft stated that several "key elements" of its collaboration with OpenAI will continue until the end of 2030, at which point their current deal (including revenue-sharing arrangements) will conclude.
Additionally, the proposed deal has sparked a fierce lawsuit from OpenAI co-founder Elon Musk, who has sought an injunction against the conversion, claiming that OpenAI deceived early donors, including himself.