OpenAI shifts to capped-profit model to attract capital

Mar 11, 2019

OpenAI announces a shift from its 2015 nonprofit structure to a hybrid model called OpenAI LP in 2019, introducing a capped-profit investment vehicle that limits investor returns to 100 times their investment while maintaining nonprofit oversight. The restructuring aims to raise capital needed to compete with well-funded rivals like DeepMind, which spent $442 million in 2017 compared to OpenAI's $11.2 million in 2016. Investors including Khosla Ventures and Reid Hoffman's foundation commit undisclosed amounts to the new structure, while the original nonprofit board retains legal authority to ensure the mission of safely developing artificial general intelligence for public benefit. CEO Sam Altman and leadership emphasize the model allows OpenAI to attract top talent through equity stakes and build computing infrastructure while preserving the organization's charter commitments through fiduciary responsibilities to the nonprofit parent.

OpenAI's transition from nonprofit to capped-profit structure

▪OpenAI was cofounded as a nonprofit in 2015 by Elon Musk and Sam Altman.
▪OpenAI announced a new for-profit investment vehicle called OpenAI LP on a Monday in 2019.
▪OpenAI's initial backers pledged $1 billion, including early Facebook investor Peter Thiel.
▪Elon Musk left the board of OpenAI in February 2018 and is not formally involved in OpenAI LP.

High costs of AI development and talent competition

▪OpenAI spent $11.2 million in 2016 according to IRS filings.
▪OpenAI rented computing resources from Google for training Dota 2 bots in summer 2018.
▪Ilya Sutskever received more than $1.9 million in compensation from OpenAI in 2016.