OpenAI is an artificial intelligence research laboratory that transitioned into a for-profit organization in 2019, which comprised an entity called OpenAI LP and the non-profit parent foundation: OpenAI. OpenAI has a commercial partnership with Microsoft and various investors like Khosla Ventures and Reid Hoffman. Through the latest funding round in 2023, other VCs like Sequoia, a16z, Tigers Global, and Founders Fund also invested in the company.
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When was OpenAI founded?
OpenAI is an artificial intelligence research laboratory that transitioned into a for-profit organization in 2019, which comprised an entity called OpenAI LP and the non-profit parent foundation OpenAI.
The lab, which was founded in 2015 by Elon Musk, Sam Altman, and various others, has a core focus on the development of friendly AI that benefits society as a whole.
Yet now has primarily evolved as a capped-for-profit entity with an exclusive commercial license to Microsoft.
As we saw, the OpenAI non-profit was founded in 2015 with around $1 billion in capital.
In addition to Musk and Altman, prominent Silicon Valley identities such as Peter Thiel, Reid Hoffman, and Greg Brockman were also involved.
So too were Y Combinator founder Jessica Livingston, Indian IT multinational company Infosys, and computer scientists Ilya Sutskever and Wojciech Zaremba.
While initially, OpenAI was a non-profit organization and declared that it would publish its research and patents to collaborate with others in the industry, now it has turned to a hybrid organizational structure.
OpenAI Gym and Universe
To facilitate this collaboration and enable researchers to develop and compare reinforcement learning (RL) systems, the company launched OpenAI Gym in April 2016.
Gym was followed later that year by OpenAI Universe, a software platform used to measure and train an AI’s general intelligence across websites, games, and other applications.
In essence, Universe is a way to train a single agent to perform any task a human can complete with a computer.
Musk resignation
Musk resigned from the company’s board of directors in 2018. In a February announcement, OpenAI explained the rationale behind the decision: “Elon Musk will depart the OpenAI Board but will continue to donate and advise the organization. As Tesla continues to become more focused on AI, this will eliminate a potential future conflict for Elon.”
However, in 2019, Musk admitted he quit because he was not in favor of aspects of what the OpenAI team wanted to accomplish.
He also noted on Twitter that since OpenAI and Tesla competed to recruit similarly skilled talent, it was better to part ways on amicable terms.
Who owns OpenAI today?
OpenAI transformed from a non-profit to a “capped” for-profit in 2019 such that profits were limited to 100x on any investment.
Equity was then distributed to employees, with a $1 billion investment from Microsoft soon after to become OpenAI’s exclusive cloud provider.
Two years later in a sale of OpenAI stock from existing shareholders to investors, the company became part-owned by the likes of Sequoia Capital, Tiger Global Management, Andreesen Horowitz, and Bedrock Capital.
In January 2023, Forbes reported that Microsoft was in discussions to invest a further $10 billion in OpenAI to have it valued at $29 billion.
If successful, the deal would have a unique structure, where Microsoft would get a 75% share of profits that OpenAI will generate, in the future, until it recoups the $10 billion investments.
Once the $10 billion investment has been recouped, Microsoft would start getting a 49% stake in the company‘s future profits until reaching its cap, which might be fixed and determined according to the deal.
Indeed, as a for-profit, capped organization, OpenAI will enable limited partners to gain a maximum of 100x on their investment (the cap is determined from time to time, according to each limited partner agreement).
Once the limited partner reaches the cap, ownership will be preserved in the OpenAI LP, which will retain all its future profits, once the capped for its limited partners has been achieved.
This structure was picked up based on the belief that OpenAI can achieve or get close to AGI (artificial general intelligence), which might create.
As a result, trillions of dollars of wealth might need to be redistributed to the public via the non-profit foundation.
Other reports, such as those from The Wall Street Journal, said that VC firms such as Thrive Capital and Founders Fund were in line to purchase existing shares.
How does OpenAI corporate and organizational structure work?
OpenAI is organized around two entities: OpenAI Inc. (the foundation), which is the general partner, and in charge of OpenAI LP, that instead is a capped-profit organization.
The OpenAI board manages the OpenAI LP; this board is comprised of employees like Greg Brockman (Chairman & President), Ilya Sutskever (Chief Scientist), and Sam Altman (CEO), and non-employees like Adam D’Angelo, Reid Hoffman, Will Hurd, Tasha McCauley, Helen Toner, and Shivon Zilis.
The Microsoft-OpenAI Deal
After a couple of months of talks, which started in December 2022, Microsoft and OpenAI confirmed a multi-year, multi-billion dollars partnership, where Microsoft (through Azure) will continue to provide the infrastructure needed for OpenAI to improve its products further while having a solid cloud infrastructure underneath.
On the other hand, Microsoft will get an exclusive commercial partnership to integrate, distribute and develop new products on top of OpenAI’s technology.
In the meantime, OpenAI will maintain its current corporate governance structure.
From the partnership, Microsoft started to integrate OpenAI’s technology into its core products quickly.
Starting with Bing.
The new AI-powered Bing leverages a layer that Microsoft has created, called Prometheus, which interacts with OpenAI, to make it viable within search.
Indeed, Prometheus, while using OpenAI as the core and foundational for the new conversational interface of Bing (called Bing Chat), also added various features to smooth out some of the drawbacks of OpenAI’s GPT.
Thus, Prometheus tries to make GPT more factual (by preventing it from giving answers when some context might be missing), grounded (by leveraging the indexing technology Bing has), and authoritative (by enabling it to provide sources on the fly).
The interesting thing is that Microsoft started to integrate OpenAI into search first, thus hitting the core of Google’s business model.
In the meantime, ChatGPT started to make money via a freemium model.
Key takeaways
- OpenAI is an artificial intelligence research laboratory comprised of the for-profit company OpenAI LP and the non-profit parent company OpenAI Inc.
- OpenAI Gym is a platform for the comparison of reinforcement learning (RL) systems, while Universe is used to train AI agents across websites, games, and applications. Both were launched in 2016.
- When OpenAI became a for-profit company in 2019, equity was distributed to employees. Some of this equity has been sold to VC firms, while other interest parties, such as Microsoft, have made sizeable investments.
- By January 2023, Microsoft and OpenAI announced the further development of their partnership, with a multi-year and multi-billion commercial partnership, giving OpenAI the infrastructure needed to run its products. And Microsoft the ability to commercialize them.
Timeline
- 2015: OpenAI is founded as a non-profit artificial intelligence research laboratory by Elon Musk, Sam Altman, and others, with a focus on developing friendly AI.
- April 2016: OpenAI launches OpenAI Gym, a platform for comparing reinforcement learning systems.
- Later in 2016: OpenAI launches OpenAI Universe, a software platform to train AI agents across various applications.
- 2018: Elon Musk resigns from OpenAI’s board of directors to avoid potential conflicts of interest with Tesla’s AI endeavors.
- 2019: OpenAI transitions from a non-profit to a for-profit entity with a capped profit structure limiting profits to 100x on investments.
- 2019: Microsoft invests $1 billion in OpenAI, becoming the exclusive cloud provider.
- 2023: OpenAI raises funding from various investors, including Sequoia Capital, Tiger Global Management, Andreesen Horowitz, and Bedrock Capital.
- January 2023: Microsoft announces discussions to invest an additional $10 billion in OpenAI, valuing the company at $29 billion, with a unique profit-sharing structure.
- Microsoft and OpenAI confirm a multi-year, multi-billion-dollar partnership, allowing Microsoft to integrate, distribute, and develop new products using OpenAI’s technology.
- ChatGPT, a product of OpenAI, adopts a freemium model, offering limited capabilities for free and a premium version with added features for a subscription fee.
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