Founders: Pay attention to what happened with the OpenAI board

This weekend, a softthe rumbling sentiment has reached a strong consensus: Why on earth was OpenAI structured this way?

In very stupid terms, its nonprofit arm had complete control over the for-profit holding company, giving it the ability to oust Sam Altman as CEO without even notifying the famous Silicon Valley executive or the one of the organization’s investors. . More technically, as James Rosen-Birch, founder of the stealth startup, explained to me, OpenAI is a tax-exempt charity wrapped around a holding company, which then owns a majority stake (with Microsoft as a minority owner ) in the for-profit side of OpenAI.

The story of OpenAI is now a famous one: a company that was founded to advance research and development in artificial general intelligence and realized it needed a lot of money to do so . It took money from investors and sovereign wealth funds who, of course, wanted returns, and so created a for-profit subsidiary that could issue them shares. This subsidiary, however, remained under the complete control of the tax-exempt charity and its board of directors, who, unlike the investors, had no financial interest in the company, only the desire to ensure that that AI be used for the good of humanity. If this business structure gives you lesson, you’re not alone.

Although no one knows exactly what happened, a common theory is that Altman’s for-profit efforts became at odds with the nonprofit board’s mission.

Internal tensions

In fact, Kimberly Bryant, founder of Ascend Ventures, told us what many in the tech world were thinking: as OpenAI became more popular, struck some sweet brand deals, and sought a valuation of nearly 90 billion dollars, this introduced business complexities that the board of directors might have felt were contrary to the company’s stated objectives. Although a nonprofit, vision mismatch is hardly unheard of in the for-profit sector, leading to conflict between directors and CEOs.

“Nonprofit entities inherently prioritize “serving the public good” over profit maximization, a commitment that faces challenges amid the dynamics of hypergrowth and diverse investor goals “Bryant told TechCrunch+. “Problems arise when boards become too controlling, overstep their authority, or act in their own self-interest… such dynamics can not only impede progress, but also pose a significant threat, potentially causing serious damage to the company. organization or business. »

Rosen-Birch said OpenAI’s structure created several overlapping issues and questions, such as whether a for-profit company in a tax-exempt shell Really exists for the good of humanity if it does not have to pay for shared public goods and services. “And perhaps most relevant to the issue at hand, how can a board of directors judge whether a company is acting in the best interests of humanity? What power do they have to enforce these interests,” he said. “Looking back, it appears the board was just as confused as we were about (the answer to those) questions.”

The latest update as of publication indicates that Microsoft, one of OpenAI’s largest investors, wants Altman to work for them; Almost all of OpenAI has signed a petition to resign if he does not return, and the fate of OpenAI’s board of directors is up in the air.

A cautionary tale

While OpenAI’s board structure is unique, the fallout of recent days should serve as a cautionary tale for founders and board members. Rarebreed Ventures founder McKeever Conwell said founders rarely pay attention to their own board structure until something serious, like a Silicon Palace A coup d’état is organized against them. “Everyone wants to say the boards are broken, but that’s not the case,” he said. “People just don’t know how to run their boards.”

Bryant, who was ousted from her last company by the board, said OpenAI’s mess could teach startups to “meticulously” choose their board, set clear expectations, impose limits mandate and diligently ensure alignment with the long-term vision of the organization.