OpenAI struggles to value Microsoft’s deal to become a for-profit company.

OpenAI’s board is locked in complex negotiations to become a for-profit company, with the newly formed philanthropic arm struggling to determine the value of Microsoft’s stake in the startup as it holds talks for a $30 billion valuation.

ChatGPT’s maker, which is overseen by a nonprofit board, has been discussing a restructuring since September that would split the startup into two. The philanthropic arm will have a stake in the newly formed Public Benefit Corporation (PBC), which is OpenAI’s original mission to “benefit humanity.”

One obstacle to the change is deciding how much equity the startup’s biggest backer, Microsoft, will hold in PBC, people familiar with the talks said. Other issues, such as how much equity CEO Sam Altman will give in the new company, will also need to be ironed out.

The philanthropic arm could be valued at about $30 billion, but a final price has yet to be determined, according to three people familiar with the negotiations. Most of that value will be realized in the form of equity in PBC, one added, and the rest will be paid in cash.

Carla Dennis, chief executive of tax consultancy KDA, said such transactions are often paid for in cash, adding that “this is a new phenomenon for not-for-profit organizations to have a stake in profits”.

The restructuring will create “one of the best-resourced nonprofits in history,” he said. Open AI. But some, including Elon Musk, argue that the nonprofit’s true value is much higher given its control over OpenAI, which is estimated at $157 billion.

The switch is designed to enable OpenAI to raise tens of billions of dollars more from investors, which the startup sees as essential to developing advanced AI models ahead of its rivals. But it’s a big break from the OpenAI Foundation as a non-profit with little legal precedent for such a complicated move.

OpenAI agreed a two-year deadline with investors to complete the conversion as part of its latest funding round in September. If the transition is not completed by the deadline, investors could get back some of the $6.6 billion they put into the company.

Of the existing stakeholders, Microsoft’s relationship with OpenAI is the most sensitive.

Figuring out how fair it can be without drawing antitrust attention from Microsoft is another critical component of the switch to PBC, said a person close to OpenAI.

OpenAI and Microsoft declined to comment.

On Tuesday, Microsoft announced that it was changing the structure of its deal with OpenAI so that the startup could use rival cloud computing services.

The move means Microsoft will relinquish its position as OpenAI’s sole cloud service provider, but will retain its right of first refusal. Microsoft said several “key elements” of its partnership with OpenAI will last until the end of 2030, when their current deal ends revenue-sharing arrangements.

That move comes as OpenAI announced this week Join a joint venture Japan’s SoftBank, which plans to build at least $100 billion on AI infrastructure in the US, has been dubbed Stargate.

The battle over the future of OpenAI The move to become a for-profit company in Silicon Valley to influence the global race to develop and commercialize generative AI has proven controversial.

The proposed transaction has led to high-profile lawsuits from Musk, the co-founder of OpenAI, which started with rival group xAI. Musk sought an injunction against the change, including earlier donors who misled OpenAI into thinking they were supporting the research group.

OpenAI was founded as a charity in 2010.

Currently, the future of finance is tied to advances such as the arrival of Artificial General Intelligence (AGI), the point at which technology has a level of intelligence similar to that of humans. Articles related to AGI They are being written out of the new structure, the Financial Times previously reported.

When the company’s complex corporate governance ousted Altman in November 2023, the nonprofit’s board left him alone to be reinstated.

People close to the negotiations believe the transaction could be completed this year, but added that the talks could change and continue for several months.

Another issue is the complexity of pricing such new and powerful technology.

That decision rests with OpenAI’s board, which includes Altman, former head of sales force Brett Taylor, and former US Treasury Secretary Larry Summers. According to the startup’s charter, they have a primary duty of “humanity, not OpenAI’s investors.”

“There’s a clear conflict of interest when the board negotiates[the nonprofit’s values]. Of course, the board wants to pay as little money as possible,” said a former OpenAI employee. “I’m not sure that a real weapons process can solve this conflict.”

Kathleen Jennings, the Delaware attorney general who joined OpenAI, asked for more information on the deal.

Jennings said it’s her responsibility to make sure the change is done at the right cost and for the public good. However, OpenAI has not yet provided such details as they are still working internally and with stakeholders.

“There is no real precedent for this,” said a person with knowledge of the discussions. “A Research Company Worth $157 Billion.”

Additional reporting by Tabby Kinder and Stephen Morris in San Francisco