Investors lament OpenAI’s non-profit governance model

The repercussions could be considerable

OpenAI was never much like other generative AI startups – or other startup periods, for that matter. Its governance structure is unique and that’s what ultimately led to the abrupt ouster of CEO Sam Altman on Friday.

Even after its transition from a nonprofit to a “capped profit” company in 2019, OpenAI retained an unusual structure that unequivocally defined what investors could – and could not – expect from management. of the startup.

For example, returns from OpenAI backers are limited to 100 times that of an initial investment. This means that if an investor invests $1, for example, their total returned profit is capped at $100.

OpenAI investors also agree – at least in theory – to respect the mission of the nonprofit organization that guides OpenAI’s business efforts. That mission is to achieve artificial general intelligence (AGI), or AI that can “outperform humans at the most economically profitable work” – but without necessarily generating a profit during or after achieving it. Determining exactly when OpenAI has achieved AGI is at the sole discretion of the Board of Directors, and such AGI – regardless of its form – is exempt from the commercial licensing agreements that OpenAI has entered into with its current customers.

How OpenAI described its operational structure before the crisis. Image credits: OpenAI

OpenAI’s dual, mission-driven structure was ambitious to say the least, inspired by effective altruism and intended to clearly delineate the company’s money-making efforts from its more ambitious humanistic goals. But investors didn’t count on the board to exercise its power in the way it did. Neither do many employees, it seems.