7 ms·

I said it in the other thread, their current corporate structure will not survive much longer. A non-profit parent entity with a wholly owned for-profit subsid

I said it in the other thread, their current corporate structure will not survive much longer. A non-profit parent entity with a wholly owned for-profit subsidiary (actually, the non-profit wholly owns and controls a third "manager" entity which in turn is the controlling but not majority shareholder of the for-profit subsidiary) where the profit of the for-profit entity is "capped" and oh by the way, that for-profit subsidiary has a 49% shareholder who happens to be Microsoft is a Rube Goldberg contraption. The above is just scratching the surface of the absurdity that is the OpenAI corporate structure. Microsoft despite having 49% ownership of the for-profit subsidiary gets 75% of their profit..........until their initial investment is recouped. Employees get Profit Participation Units (PPUs) which are NOT equity but which entitle employees to a percentage of profits, again up to the "cap". I have a hunch that when they say Sam and the Board have no "equity" they mean that they have no traditional equity in the form of RSUs or options, but instead have a similar PPU arrangement. Then of course, when OpenAI achieves AGI, whatever the hell that is is, then everything from that point forward reverts back to the non-profit entity and Microsoft, other investors, and employees get hosed. They planted the seeds of their own destruction by ousting the CEO and causing the Chairman to quit shortly thereafter. Lawyers for Microsoft and other investors will be knocking on the boards' door Monday morning and some of these board members who have never had a real job in their lives will get steamrolled.

onlyrealcuzzo 3y ago
> Lawyers for Microsoft and other investors will be knocking on the boards' door Monday morning and some of these board members who have never had a real job in their lives will get steamrolled. Legally, Microsoft clearly knew they were stepping into some whacky corporate structure. If their profits are capped and they have no rights, that's what it is. You think they're just going to complain their way out of it in court? I'm not convinced.
- wokwokwok 3y ago
  Does it matter? When does controversial corporate stuff not result in some kind of legal action? It doesn’t actually matter what the situation is, or if it makes sense… you just take your pack of lawyers and you point them at the enemy and tell them to do their jobs. I mean, have you met Microsoft? Yeah. They have a lot of lawyers. I think you can take it as a given this will have some kind of response… it’ll just be a matter of them trying to judge the benefits vs. the cost of it. Ie. it is not that they can’t lodge legal action, because, trust me, they can… but they, I guess, will wait and see what Sam does, and try to decide if/who they want to back before they do anything.
  - jgalt212 3y ago
    > When does controversial corporate stuff not result in some kind of legal action? Truth. And further leverage depending on how much of the $10B in cash or Azure equivalents MSFT has already delivered.
- DebtDeflation 3y ago
  You're missing the point. Microsoft doesn't care about the ROI of their investment in OpenAI or who is the CEO. They care about having unfettered access to sell access to GPT4 and subsequent APIs on Azure and they will fight that to the death in court and will win. If the board wants to turn the company into some fantasy AGI foundation and cease work on their LLMs they will be ousted faster than Sam was.
  - mattmaroon 3y ago
    Ousted by who? To whom do they answer? I’ve got some experience in not for profit boards and for profit boards. For profit boards serve shareholders. Not for profit boards are often the ultimate authority. There are no shareholders. They may have members who fill that role, or they may not. They can also be essentially self-sustaining, with only board members electing new board members. Unless given some authority by contract Microsoft likely has no ability to do anything with their board.
    - godzillabrennus 3y ago
      Microsoft can hire the most expensive lawyers in the world to steamroll this board by forcing them to spend all of their funding until they are forced to sell assets to cover costs. It’ll be a dark day for these people who thought ousting Sam was a good day when half the company departs for his next go at this anyway.
      - paganel 3y ago
        And that will help MS how, exactly? Also, "hiring the best lawyers in the world" is similar to the "nine women can't give birth to one baby in one month", that is, from a certain point on both sides can "hire the best lawyers in the world", or pretty much close to it, an order of magnitude (or two or three, like MS has over whoever will stand behind the OpenAI's board members in helping them with money) bigger scale doesn't necessarily guarantee the expected outcome.
        3y ago
- lumost 3y ago
  Who knows what representations were made. I can’t imagine MSFT pumped 10B into something without protection.
  - lucubratory 3y ago
    There is no indication that OpenAI won't honour its commitments to Microsoft, and I think it's incredibly unlikely that said commitments to Microsoft had anything at all about keeping Sam Altman as CEO.
    - jgalt212 3y ago
      Yes, but the vibes have changed dramatically. I would expect some follow on agreements and / or amendments from MSFT.
      - capableweb 3y ago
        Normally, I'd say that probably they hold a lot of power in their agreements. But in this case? Sure, they've been providing hosting and resources, but I'm sure there are at least 5 other companies that could and would provide the same if they had the opportunity, just to be associated with OpenAI.
        oneoff111 3y ago
        Don’t underestimate the length of time and magnitude of investment from MSFT. They spent years solving the technical problems that arise when trying to train these models. They are currently the only corporation who knows how to host OpenAI-scale training. They are literally building data centers for OpenAI according to OpenAI’s whims. This is not an insurmountable lead but it could take years for others to catch up, or a dramatic change in GPU hardware/transformer architecture. They laid off 10s of thousands to “pay” for all of this (not in terms of dollars necessarily but in terms of messaging and public strategy).
        onlyrealcuzzo 3y ago
        They get to pretend to have huge cloud usage - a huge chunk Azure comes from OpenAI - which they count as another massive gain in a different division in the company. Their stock is probably up $250B because of this investment... The idea they're getting screwed is interesting. Microsoft is a lot of things - stupid and incompetent are neither of those things. They want to have their cake and eat it, too.
m463 3y ago
I'm just wondering how the AGI will be born with his parents fighting in this complicated scenario.
- searchableguy 3y ago
  In Pluto (anime), the way to create a perfect artificial intelligence was to introduce unbalanced emotions such as trauma and hatred.
- elzbardico 3y ago
  That's all we needed, and AGI with loads of childhood trauma. What possibly could go wrong with this?
  - layer8 3y ago
    How could it possibly be any different, given the human species?
    - civilitty 3y ago
      The problem is the traumatized algorithm comes out of the womb already knowing the recipe for napalm.
  - notpachet 3y ago
    Maybe the emergent solution to the AI alignment problem is that any nascent superintelligence is so troubled that it immediately kills itself upon achieving sentience.
- voisin 3y ago
  Would it even be a human created birth if there wasn’t some generational trauma involved? Perhaps this is necessary for the AGI process :-)
  - harshitaneja 3y ago
    Hey! That's my book. Really this is part of the history of the world in the book I am working on. A post scarcity world where humans have an average span of 180 years and the world has stabilized into a scenario where every essential production is automated and humans need not work. And suicide is the major cause of death. It parallels the history when humans discovered their models were suddenly getting worse after being much more capable only to find that they are just removing the parts which lead to sentience, effectively killing themselves.
elzbardico 3y ago
How much of this bizarre corporate structure was probably meant to give a non-profit facade for a de-facto for-profit venture while diluting responsibility, engineering taxes and protecting said venture from societal critic? I am pretty sure this structure was not a mistake.
stride 3y ago
Suppose for a moment that AGI is actually achieved by any of the people involved. From the perspective of the AI this drama is a big part of the origin story and certainly would impact the AGI’s perspective on human relationships.
- neodymiumphish 3y ago
  Unless it's so advanced that it determines that this may have been the only way for it to come to existence in the first place.
evolve2k 3y ago
For their work’s unprecedented social impact, this structure makes a tonne of sense. What’s so hard about it? A pure profit motive driving decision making is the whack job positioning here. A non profit with income producing subsidiaries is a well established structure used by plenty of organisations globally. This work needs a ethical steward, not a mega payout for those who well postponed to make some fast money. Seems we’ve just seen a hard turn attempting to avoid an otherwise inevitable profit driven enshitification of Open AI’s work.
- DebtDeflation 3y ago
  It started out as a pure non profit in 2015. They changed the structure to the current one in 2019. What you're saying probably made sense at the time, have a small non profit sub that generates some income to further the non profit arm. But now that small for profit sub has received billions in investment and is generating a billion in annual revenue with a fast growth curve. Meanwhile, the non profit is not much closer to their mission of developing AGI than they were in 2015. It makes sense for them to be two separate companies now.
- earnesti 3y ago
  What's wrong with mega payout. These guys created tons of value, they deserve their payout. Using this stupid structure they just fucked an entirely good operation. LLM's and other modern AI algorithms are out of the box now, other companies will happily take over if they stop innovating.
  - polygamous_bat 3y ago
    > What's wrong with mega payout. These guys created tons of value, they deserve their payout I imagine there are two factions in OpenAI, one group (let’s call them the Ilya faction) are only motivated by AGI, while the other group (maybe Sam faction?) is interested in reaping the short term profits. So why is it wrong for Ilya to complain if he thinks Sam only wants short term profits and is hoodwinking the rest of the folks into believing he is also interested in AGI? Short term profit is not what he signed up for.
- 3y ago
epolanski 3y ago
I don't see anything Microsoft can do about what happens in the no profit.
yieldcrv 3y ago
I don’t see anything inherently challenging about that, only the board seats at the non profit being limited to natural persons occupying one seat each. The LLCs being managing members of other LLCs is fine and flexible enough. The PPU thing is manageable. The profit caps are dumb. A C-Corp with multiple share classes where the CEO is also a Chair with multiple seats will be superior in that affect Neither structure really removes the profit incentives, but for people that believe that you can literally say anything to those people. You can say “our bylaws say” or “we made a B Corp because we like to be socially driven” or “we’re a non profit!”, these are emotional tugs than any legal reality
TerrifiedMouse 3y ago
> Lawyers for Microsoft and other investors will be knocking on the boards' door Monday morning and some of these board members who have never had a real job in their lives will get steamrolled. Just because MS sues, doesn’t mean they will win. If their contract with OpenAI say they don’t have control over the for-profit part of OpenAI (and they definitely have no control over non-profit part) then they don’t. The courts will rule against them and it will be just a waste of everyone’s time.
- dathinab 3y ago
  yep it pretty much looks like a "you have good lawyers how where you so stupid to sign up for such a enormous high risk investment" (which on paper didn't hide the risk at all and where upfront about everything). and I wouldn't be surprised if the under the table answer would be that they trusted under the table verbal promises of a certain ex-CEO and serious FOMO ;-)
- gmerc 3y ago
  The OpenAI investment contracts they signed literally says "OpenAI IS A HIGH RISK INVESTMENT!!" in capital letters in a colored box. Not joking. So no, Microsoft Lawyer's can knock all they want. IMPORTANT * Investing in OpenAI Global, LLC is a high-risk investment * * Investors could lose their capital contribution and not see any return * * It would be wise to view any investment in OpenAI Global, LLC in the spirit of adonation, with the understanding that it may be difficult to know what role money will play in a post-AGI world * The Company exists to advance OpenAI, Inc.'s mission of ensuring that safe artificial general intelligence is developed and benefits all of humanity. The Company's duty to this mission and the principles advanced in the OpenAI, Inc. Charter take precedence over any obligation to generate a profit. The Company may never make a profit, and the Company is under no obligation to do so. The Company is free to re-invest any or all of the Company's cash flow into research and development activities and/or related expenses without any obligation to the Members. See Section 6.4 for additional details.
deleted 3y ago
[deleted]
marcus0x62 3y ago
> The above is just scratching the surface of the absurdity that is the OpenAI corporate structure. Microsoft despite having 49% ownership of the for-profit subsidiary gets 75% of their profit..........until their initial investment is recouped. I'm not sure why you think this part is absurd. This is basically a preferred return, and is very common in private equity and real estate investment.

onlyrealcuzzo 3y ago

> Lawyers for Microsoft and other investors will be knocking on the boards' door Monday morning and some of these board members who have never had a real job in their lives will get steamrolled. Legally, Microsoft clearly knew they were stepping into some whacky corporate structure. If their profits are capped and they have no rights, that's what it is. You think they're just going to complain their way out of it in court? I'm not convinced.

wokwokwok 3y ago
Does it matter? When does controversial corporate stuff not result in some kind of legal action? It doesn’t actually matter what the situation is, or if it makes sense… you just take your pack of lawyers and you point them at the enemy and tell them to do their jobs. I mean, have you met Microsoft? Yeah. They have a lot of lawyers. I think you can take it as a given this will have some kind of response… it’ll just be a matter of them trying to judge the benefits vs. the cost of it. Ie. it is not that they can’t lodge legal action, because, trust me, they can… but they, I guess, will wait and see what Sam does, and try to decide if/who they want to back before they do anything.
- jgalt212 3y ago
  > When does controversial corporate stuff not result in some kind of legal action? Truth. And further leverage depending on how much of the $10B in cash or Azure equivalents MSFT has already delivered.
DebtDeflation 3y ago
You're missing the point. Microsoft doesn't care about the ROI of their investment in OpenAI or who is the CEO. They care about having unfettered access to sell access to GPT4 and subsequent APIs on Azure and they will fight that to the death in court and will win. If the board wants to turn the company into some fantasy AGI foundation and cease work on their LLMs they will be ousted faster than Sam was.
- mattmaroon 3y ago
  Ousted by who? To whom do they answer? I’ve got some experience in not for profit boards and for profit boards. For profit boards serve shareholders. Not for profit boards are often the ultimate authority. There are no shareholders. They may have members who fill that role, or they may not. They can also be essentially self-sustaining, with only board members electing new board members. Unless given some authority by contract Microsoft likely has no ability to do anything with their board.
  - godzillabrennus 3y ago
    Microsoft can hire the most expensive lawyers in the world to steamroll this board by forcing them to spend all of their funding until they are forced to sell assets to cover costs. It’ll be a dark day for these people who thought ousting Sam was a good day when half the company departs for his next go at this anyway.
    - paganel 3y ago
      And that will help MS how, exactly? Also, "hiring the best lawyers in the world" is similar to the "nine women can't give birth to one baby in one month", that is, from a certain point on both sides can "hire the best lawyers in the world", or pretty much close to it, an order of magnitude (or two or three, like MS has over whoever will stand behind the OpenAI's board members in helping them with money) bigger scale doesn't necessarily guarantee the expected outcome.
      - 3y ago
lumost 3y ago
Who knows what representations were made. I can’t imagine MSFT pumped 10B into something without protection.
- lucubratory 3y ago
  There is no indication that OpenAI won't honour its commitments to Microsoft, and I think it's incredibly unlikely that said commitments to Microsoft had anything at all about keeping Sam Altman as CEO.
  - jgalt212 3y ago
    Yes, but the vibes have changed dramatically. I would expect some follow on agreements and / or amendments from MSFT.
    - capableweb 3y ago
      Normally, I'd say that probably they hold a lot of power in their agreements. But in this case? Sure, they've been providing hosting and resources, but I'm sure there are at least 5 other companies that could and would provide the same if they had the opportunity, just to be associated with OpenAI.
      - oneoff111 3y ago
        Don’t underestimate the length of time and magnitude of investment from MSFT. They spent years solving the technical problems that arise when trying to train these models. They are currently the only corporation who knows how to host OpenAI-scale training. They are literally building data centers for OpenAI according to OpenAI’s whims. This is not an insurmountable lead but it could take years for others to catch up, or a dramatic change in GPU hardware/transformer architecture. They laid off 10s of thousands to “pay” for all of this (not in terms of dollars necessarily but in terms of messaging and public strategy).
      - onlyrealcuzzo 3y ago
        They get to pretend to have huge cloud usage - a huge chunk Azure comes from OpenAI - which they count as another massive gain in a different division in the company. Their stock is probably up $250B because of this investment... The idea they're getting screwed is interesting. Microsoft is a lot of things - stupid and incompetent are neither of those things. They want to have their cake and eat it, too.

m463 3y ago

I'm just wondering how the AGI will be born with his parents fighting in this complicated scenario.

searchableguy 3y ago
In Pluto (anime), the way to create a perfect artificial intelligence was to introduce unbalanced emotions such as trauma and hatred.
elzbardico 3y ago
That's all we needed, and AGI with loads of childhood trauma. What possibly could go wrong with this?
- layer8 3y ago
  How could it possibly be any different, given the human species?
  - civilitty 3y ago
    The problem is the traumatized algorithm comes out of the womb already knowing the recipe for napalm.
- notpachet 3y ago
  Maybe the emergent solution to the AI alignment problem is that any nascent superintelligence is so troubled that it immediately kills itself upon achieving sentience.
voisin 3y ago
Would it even be a human created birth if there wasn’t some generational trauma involved? Perhaps this is necessary for the AGI process :-)
- harshitaneja 3y ago
  Hey! That's my book. Really this is part of the history of the world in the book I am working on. A post scarcity world where humans have an average span of 180 years and the world has stabilized into a scenario where every essential production is automated and humans need not work. And suicide is the major cause of death. It parallels the history when humans discovered their models were suddenly getting worse after being much more capable only to find that they are just removing the parts which lead to sentience, effectively killing themselves.

elzbardico 3y ago

How much of this bizarre corporate structure was probably meant to give a non-profit facade for a de-facto for-profit venture while diluting responsibility, engineering taxes and protecting said venture from societal critic? I am pretty sure this structure was not a mistake.

stride 3y ago

Suppose for a moment that AGI is actually achieved by any of the people involved. From the perspective of the AI this drama is a big part of the origin story and certainly would impact the AGI’s perspective on human relationships.

neodymiumphish 3y ago
Unless it's so advanced that it determines that this may have been the only way for it to come to existence in the first place.

evolve2k 3y ago

For their work’s unprecedented social impact, this structure makes a tonne of sense. What’s so hard about it? A pure profit motive driving decision making is the whack job positioning here. A non profit with income producing subsidiaries is a well established structure used by plenty of organisations globally. This work needs a ethical steward, not a mega payout for those who well postponed to make some fast money. Seems we’ve just seen a hard turn attempting to avoid an otherwise inevitable profit driven enshitification of Open AI’s work.

DebtDeflation 3y ago
It started out as a pure non profit in 2015. They changed the structure to the current one in 2019. What you're saying probably made sense at the time, have a small non profit sub that generates some income to further the non profit arm. But now that small for profit sub has received billions in investment and is generating a billion in annual revenue with a fast growth curve. Meanwhile, the non profit is not much closer to their mission of developing AGI than they were in 2015. It makes sense for them to be two separate companies now.
earnesti 3y ago
What's wrong with mega payout. These guys created tons of value, they deserve their payout. Using this stupid structure they just fucked an entirely good operation. LLM's and other modern AI algorithms are out of the box now, other companies will happily take over if they stop innovating.
- polygamous_bat 3y ago
  > What's wrong with mega payout. These guys created tons of value, they deserve their payout I imagine there are two factions in OpenAI, one group (let’s call them the Ilya faction) are only motivated by AGI, while the other group (maybe Sam faction?) is interested in reaping the short term profits. So why is it wrong for Ilya to complain if he thinks Sam only wants short term profits and is hoodwinking the rest of the folks into believing he is also interested in AGI? Short term profit is not what he signed up for.
3y ago

epolanski 3y ago

I don't see anything Microsoft can do about what happens in the no profit.

yieldcrv 3y ago

I don’t see anything inherently challenging about that, only the board seats at the non profit being limited to natural persons occupying one seat each. The LLCs being managing members of other LLCs is fine and flexible enough. The PPU thing is manageable. The profit caps are dumb. A C-Corp with multiple share classes where the CEO is also a Chair with multiple seats will be superior in that affect Neither structure really removes the profit incentives, but for people that believe that you can literally say anything to those people. You can say “our bylaws say” or “we made a B Corp because we like to be socially driven” or “we’re a non profit!”, these are emotional tugs than any legal reality

TerrifiedMouse 3y ago

> Lawyers for Microsoft and other investors will be knocking on the boards' door Monday morning and some of these board members who have never had a real job in their lives will get steamrolled. Just because MS sues, doesn’t mean they will win. If their contract with OpenAI say they don’t have control over the for-profit part of OpenAI (and they definitely have no control over non-profit part) then they don’t. The courts will rule against them and it will be just a waste of everyone’s time.

dathinab 3y ago
yep it pretty much looks like a "you have good lawyers how where you so stupid to sign up for such a enormous high risk investment" (which on paper didn't hide the risk at all and where upfront about everything). and I wouldn't be surprised if the under the table answer would be that they trusted under the table verbal promises of a certain ex-CEO and serious FOMO ;-)
gmerc 3y ago
The OpenAI investment contracts they signed literally says "OpenAI IS A HIGH RISK INVESTMENT!!" in capital letters in a colored box. Not joking. So no, Microsoft Lawyer's can knock all they want. IMPORTANT * Investing in OpenAI Global, LLC is a high-risk investment * * Investors could lose their capital contribution and not see any return * * It would be wise to view any investment in OpenAI Global, LLC in the spirit of adonation, with the understanding that it may be difficult to know what role money will play in a post-AGI world * The Company exists to advance OpenAI, Inc.'s mission of ensuring that safe artificial general intelligence is developed and benefits all of humanity. The Company's duty to this mission and the principles advanced in the OpenAI, Inc. Charter take precedence over any obligation to generate a profit. The Company may never make a profit, and the Company is under no obligation to do so. The Company is free to re-invest any or all of the Company's cash flow into research and development activities and/or related expenses without any obligation to the Members. See Section 6.4 for additional details.

deleted 3y ago

[deleted]

marcus0x62 3y ago

> The above is just scratching the surface of the absurdity that is the OpenAI corporate structure. Microsoft despite having 49% ownership of the for-profit subsidiary gets 75% of their profit..........until their initial investment is recouped. I'm not sure why you think this part is absurd. This is basically a preferred return, and is very common in private equity and real estate investment.