OpenAI needs “more capital than we imagined” – it is switching to a for-profit mode

OpenAI said Friday that as it transitions toward a new for-profit structure in 2025, the company will create a public benefit corporation to oversee commercial operations, removing some of the restrictions placed on nonprofits and allowing it to function more like a fast-growing startup.

“The hundreds of billions of dollars that large companies are currently investing in AI development demonstrate what it will truly take for OpenAI to continue its mission,” OpenAI management wrote in the post. “Once again, we need to raise more capital than we imagined. Investors want to support us, but at this scale of capital they need conventional equity capital and less structural customization.”

The pressure on OpenAI is tied to its $157 billion valuation, achieved in the two years since the company launched its viral chatbot ChatGPT and ignited the boom in generative artificial intelligence. OpenAI closed its latest $6.6 billion round in Octoberpreparing for aggressive competition Elon Musk xAI too Microsoft, Google, Amazon and anthropic in the market it is expected to exceed $1 trillion revenues within a decade.

Developing large language models at the heart of ChatGPT and other generative AI products requires continuous investment in high-power processors, provided primarily by Nvidiaand cloud infrastructure, which OpenAI largely receives from top sponsor Microsoft.

OpenAI expects about $5 billion in losses this year on $3.7 billion in revenue, CNBC confirmed in September. These numbers are growing rapidly.

By converting to a “common stock” Delaware PBC, OpenAI says it can operate commercially while separately staffing its nonprofit and allowing that wing to pursue charitable activities in health care, education and science.

The nonprofit will have a “substantial ownership interest” in PBC “at a fair valuation determined by independent financial advisors,” OpenAI wrote.

OpenAI's complex structure as it exists today is the result of its creation as a non-profit organization in 2015. It was founded by CEO Sam Altman, Musk and others as a research lab focused on artificial general intelligence, or AGI, which was a completely futuristic concept at the time.

In 2019, OpenAI wanted to move away from its role as solely a research lab in hopes of operating more like a startup, so it created a so-called capped-profit model in which the nonprofit still controls the entire entity.

“Our current structure does not allow the Board to directly address the interests of those who would fund the mission and does not allow a nonprofit to easily do more than control a for-profit organization,” OpenAI wrote in a post Friday.

OpenAI added that the change “will enable us to raise the necessary capital on conventional terms like our competitors.”

OpenAI's restructuring efforts face several major hurdles. Most notable is Musk, who is in the process fierce legal battle with Altman, which may have a significant impact on the company's future.

In recent months, Musk has sued OpenAI and asked the court to stop the company from converting from a not-for-profit company to a for-profit company. In posts on X, he described the attempt as a “total fraud” and stated that “OpenAI is evil.” Earlier this month, OpenAI responded, accusing it in 2017, Musk “not only wanted but actually created a for-profit company” to serve as the proposed new company structure.

In addition to the clash with Musk, OpenAI has been struggling with an exodus of high-level talent, partly due to concerns that the company has focused on bringing commercial products to market at the expense of security.

In late September, Mira Murati, OpenAI's chief technology officer, announced that it was leave the company after 6 and a half years. On the same day, Chief Research Officer Bob McGrew and Vice President of Research Barret Zoph also announced they were leaving. Co-founder a month earlier Jan Schulman said he was leaving for rival startup Anthropic.

Altman said during a September interview with Italian Tech Week that the recent executive departures were not related to a potential restructuring of the company: “We've been thinking about this – our board – for almost a year now, thinking about what it would take to get to the next stage,” he said.

These were not the first outings of famous personalities. In May, OpenAI co-founder Ilya Sutskever and former security leader Jan Leike announced their departureand Leike also joined Anthropic.

Leike wrote in a social media post at the time that his decision was due to disagreements with management over the company's priorities.

“Over recent years, safety culture and processes have taken a backseat to shiny products,” he said he wrote.

One employee who had worked under Leike left shortly after, writing on X in September that “OpenAI was structured as a nonprofit but operated as a for-profit organization.” The employee added: “OpenAI should not be trusted when it promises to do the right thing later.”