OpenAI Went From Non-Profit To A For-Profit Company With Profit Caps – Now That Cap May Not Last Long

OpenAI has become everything it said it was not. From a not-for-profit research organization focused on empowering humanity through artificial intelligence, the creator of ChatGPT has become a massive corporation that is generating billions in revenue. Critics say that it is no longer driven by having a positive impact on humanity, despite what its CEO says.

The Changing Face of OpenAI

OpenAI was established in 2015 by its CEO Sam Altman in collaboration with other tech leaders such as Elon Musk, Peter Thiel, and LinkedIn cofounder Reid Hoffman. At the time, the company was marketed as a non-profit research company meant to “prioritize a good outcome for all over its own self-interest”.

“Our goal is to advance digital intelligence in the way that is most likely to benefit humanity as a whole, unconstrained by a need to generate a financial return. Since our research is free from financial obligations, we can better focus on a positive human impact,” the announcement read.

Additionally, the company was meant to be open source and researchers were strongly encouraged to publish their work, whether as papers, blog posts, or code. OpenAI also promised to share any patents it acquired with the world.

However, 4 years later, the company changed its financial standing. Due to the cost of cloud computing and other resources as well as retaining talent, OpenAI announced its redirection into a capped-profit company.

"#OpenAI was originally created as an open-source non-profit company to serve as a counterweight to Google, it has since become a closed-source maximum-profit company" pic.twitter.com/aSu527o99e

— Sabit Kondakçı (@SabitK) June 21, 2023

“We want to increase our ability to raise capital while still serving our mission, and no pre-existing legal structure we know of strikes the right balance. Our solution is to create OpenAI LP as a hybrid of a for-profit and nonprofit—which we are calling a “capped-profit” company,” the company announced.

The company was now allowed to receive investments and the profit cap was set at 100 times the investment for initial investors. As a result, OpenAI received a $1 billion investment from Microsoft which agreed to a 20 times profit cap.

Considering the size of the performance of a startup at the time, the 100 times cap is not necessarily a limit. This is because if an investor put in $10 million, the cap would only be effective once the investor received $1 billion in returns which is a farfetched idea, especially at the time.

Any profits above the limit belong to the original OpenAI nonprofit organization which would use it to run educational programs and advocacy work. Notably, the 100x cap is only for early investors, others who invested later, such as Microsoft, receive profit multipliers that are progressively smaller.

Microsoft still has a sizeable cap of 20x profit, which is still so large that it’s almost meaningless. 20 times their $13 billion investment would be a whopping $260 billion dollars.

No Caps Incoming?

Currently, profit caps are still not yet a concern for most OpenAI investors. This year, the company is anticipated to bring in no net profit and $200 million in revenue. However, OpenAI would be valued at a staggering 145 times projected sales with a price of $29 billion.

Based on its current trend, OpenAI may be able to give investors over 100 times in returns soon. To attain that, however, the company will need more money to scale its operations and business.

Unfortunately, attracting investors with a profit cap that they are sure the company can surpass is going to be difficult, let alone decreasing multiplier caps. OpenAI may soon be changing its status again to accommodate its exponential growth and finance its visions.

Aside from that, the company has transfigured so far from the initial picture it painted. Many including co-founder Elon Musk, have claimed, that OpenAI is propelled by speed and profit and neither transparent nor motivated by positive human effect.

The Tesla CEO even called the company out claiming that it used his $100 million donation to make itself a $30 billion for profit company. Important to note is that despite donating early, Elon will not reap the 100 times returns because his funds were strictly donations.

Moreover, the company is unleashing technology that, while flawed, is still poised to increase some elements of workplace automation at the expense of human employees. This is far from the “fiduciary duty to humanity” the company proclaimed at the start.

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