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OpenAI Deal Lets Employees Sell Shares at $86B Valuation
- marvin 3y agoIf OpenAI succeeds with its mission, this will be a terrible decision for sellers apart from diversification necessary to feel financially secure.
- GoodJokes 3y ago[dead]
- andrewstuart 3y agoWhy can’t they sell at $7 trillion valuation?
- jgalt212 3y agoWhat exactly do the purchasers get? If seems pretty muddy to me.
- interludead 3y agoI hope they were all willing to do it
- gigatexal 3y agohttps://archive.ph/QWem5 https://archive.ph/QWem5
- gigatexal 3y agoAnyone at private companies that has been able to participate in these share sales -- how does it work? What platform is used? Do you sell back to the company and then just get an extra large check that month? Can you trade it for shares of something else?
- rvz 3y agoAccredited investors sign up to private market brokers such as EquityZen, Forge or FlexTrade to match sellers of company stock (typically employees) with buyers (mostly outside investors). Depending on market conditions there can be private fundraising through those marketplaces which employees are able to directly sell their existing shares if they want to. This also depends on the company as well to allow this.
- ionwake 3y agoDoes anyone know if openAI shares are listen on equityzen or will be?
- sb8244 3y agoThis is an uneducated opinion, but I'd be absolutely shocked if it's not a major investor that is buying effectively privately. Random people won't be able to get shares.
- ComputerGuru 3y agoIt’s up to the individual employee.
- longhaul 3y agoNot FlexTrade, they are a trading systems ISV, not a private market broker
- maratc 3y agoIn my case, I signed a part of my shares off and received an XL check (after paying XL taxes). That was a "take it or leave it" kind of deal, no platform was used.
- sitkack 3y agoSo it was a buyback?
- maratc 3y agoTo the best of my understanding, it wasn’t a “buyback” as the money came from the new investors and not from the company itself. The new owner of the options (or shares) that were previously mine is the new investor — and again, this is what I understand, it might or might not be the actual case. None of it is my business or of any interest to me, though.
- dilyevsky 3y agoTechnical term is “tender offer”, not necessarily buyback - other investors can participate too
- mistrial9 3y agolong ago in some deals, you the junior person had to get the money to pay the tax on the transfer before you had a right to sell.. therefore, there was an intermediate step where the junior person might have to borrow money to complete the deal; failing borrowing, the junior person may not be able to take the compensation.
- yieldcrv 3y agothats still common in less sophisticated startups and markets (they think they are sophisticated though, it just depends on which VCs gave them which legal counsel) but there are a lot of lenders for cashless exercise
- toomuchtodo 3y agoAssuming an outside investor vs a buyback, tender offers are usually done through a platform such as Nasdaq Private Market. Fees are usually much more reasonable vs through marketplaces. Funds are wired at closing. There’s usually a virtual data room available with financials you can share with an attorney and/or financial advisor. https://www.nasdaqprivatemarket.com/ https://www.nasdaqprivatemarket.com/
- JumpCrisscross 3y ago> Fees are usually much more reasonable vs through marketplaces Fees on tenders are much higher than in open-market trades, they’re just baked into the buy side. The handshake deal management does with tenders is underpricing the offering so managers can add fees on top. Where open-market transactions happen alongside tenders, at least on the institutional side, it’s not uncommon to see 20%+ premiums.
- toomuchtodo 3y agoWhat are your thoughts when transactions at open markets aren’t clearing above the tender offer price?
- JumpCrisscross 3y ago> What are your thoughts when transactions at open markets aren’t clearing above the tender offer price? It signals a dysfunction. If before, information asymmetry. This, fortunately, corrected quickly. If during or after, company prospects may have changed since the tender was announced, or the company is restricting transfers to cronies. The latter is quite common, and a major profit centre for growth capital VCs.
- toomuchtodo 3y agoAppreciate it.
- realslimjd 3y agoI've worked places that have used Carta for this. Sometimes the company buys the shares back, but I think the more common case is that it's new investors. You do get a check, but it's separate from your regular one. Sales like this are long term capital gains, so they're taxed differently than your regular income. No you cannot trade it for shares of something else [0]. [0] - There are investment vehicles (exchange funds) that do this for publicly traded stocks. They're a good way of diversifying your portfolio if you're heavily weighted in one stock, but they typically keep that capital locked up for seven years which is not great if you value liquidity.
- thundergolfer 3y agoYou don’t sell back to the company. Nasdaq and other exchanges have platforms for facilitating secondary market sales. You can’t trade it for something else, it’s a sale for cash. And no, it doesn’t come into your paycheck you nominate a bank account using the platform.
- dilyevsky 3y agoIn my case (Cruise) I got offer once a quarter to liquidate any number of my vested RSUs at a price set by some third party assessor (roughly equal to last round’s valuation). If you sell the stock and get cash in your brokerage - amount needed to cover taxes. So basically like regular rsus except price is static More info (although I personally didn’t use cart for this): https://carta.com/blog/tender-offer-faq/# https://carta.com/blog/tender-offer-faq/#
- guitarsteve 3y agoMy previous employer had a tender offer as part of a new funding round. I was an ex-employee already and had exercised my options within the 90 day window of resigning. If I remember correctly, we used Carta for both exercising the options and the tender offer. For the tender offer, the company set a deadline and a price per share. Current employees were limited to selling a certain % of their options/shares. The website enforced the same restriction for me, which seemed like a bug, but I didn’t plan on selling most of my shares anyway. I chose a number of shares in a web form, clicked a button, and got cash direct-deposited. I had a larger than usual tax bill but I paid it while handling my usual annual tax return. No penalty on the taxes due to the “safe harbor” rule.
- neilv 3y agoIs this the kind of thing employees had in mind when they backed Altman?
- lord_zero_cool 3y agoOpenAI is nothing without its people
- dmitrygr 3y agoThis is why they did.
- dmix 3y agoOr they trusted Sam’s ability to run an AI company better than the 2 other e/acc advocates who wanted to pause AI development and brought in a temporary CEO who was on a podcast that same year calling for a multi yr pause on AI development. Everyone points to money but they are also working on the most exciting technology in recent history. Crippling both that and likely their long term job prospects vs Sam, whom they never got a straight story for why he was being taken out. People love to over simplify and reduce things while glossing over all the nuance.
- farrarstan 3y ago[dead]
- reducesuffering 3y agoYou mean EA, not e/acc?
- camillomiller 3y agoThe only reason they didn't want the decels to do their shtick is because that would mean, indeed, loosing heaps of potential money. But you can believe in the fable about the most exciting technology yada yada yada
- smackeyacky 3y ago
- code_runner 3y agoI know people don’t love OAI but good on these people for the well deserved pay day
- camillomiller 3y agoAlso known as unbalanced concentration of wealth, which is what tech has been enabling at a faster and faster pace for the last 25 years.
- tomp 3y agoThis is probably a deconcentration event. Rich people with a lot of money giving said money to smart working class nerds that happened to be hired by OpenAI.
- madsbuch 3y agoWe would need to know more about the demographic of said people. These shares probably end up in pension funds. So in the end it is probably going to be primary school teachers from Minnesota that pays Silicon Valley based software developers. Unless, however, they continue to create value for the pension funds. For this we will have to wait another 15 years to know.
- awesomeMilou 3y agoHow anyone can assume that the employment demographic of OpenAI is made up of "smart working class nerds" is beyond me. They hire top talent with regards to AI and AI research. I'd wager a majority of them are less working class and more smart, trained, academic nerds with an unreal amount of PhD's in the mix.
- tomp 3y agovery likely the majority of them have to work for a living, hence "working class" many are probably immigrants as well edit: according to Wikipedia, some people use "middle class" for white-collar workers
- ramesh31 3y agoWhere's the moat for OpenAI? How does the company not end up as just a feature stitched into Azure somewhere?
- JofArnold 3y agoIn an exponential game where the prize is ASI, being just a couple of steps ahead may turn out to be enough.
- spangry 3y agoTraining & individual user preference data - specifically the data being generated by people interacting with ChatGPT and DALLE. Maybe Google can out data them with all the data they currently hold, but they'd better hurry before the network effects get too strong in favour of OpenAI.
- danielmarkbruce 3y agoTry training and running really really big models.
- objektif 3y agoYou mean now. Commodity soon.
- empath-nirvana 3y agoBecause of scaling advantages, it likely never will be. Even if you could run a GPT4 quality model on your laptop (you can't), by the time you can, Open Ai will be running a model that uses orders of magnitude more compute.
- jjjjj55555 3y agoStupid question, but why aren't they doing it already? What's their bottleneck right now?
- tiffanyh 3y agoPhase 2, of Sam playbook to a take over a company. See what he did at Reddit below. He even admits to it in the thread. https://old.reddit.com/r/AskReddit/comments/3cs78i/whats_the_best_long_con_you_ever_pulled/cszwpgq/?context=99 https://old.reddit.com/r/AskReddit/comments/3cs78i/whats_the...
- ilrwbwrkhv 3y agoWow. This is something else. No wonder I couldn't make it in the VC funded world.
- SeanAnderson 3y agoDo you feel this is a bad strategy? Or what? Liquidity for employees is great. Nobody is forcing them to sell.
- iAMkenough 3y agoI think it makes sense. As long as Microsoft is cool with it, they'll keep providing the compute power necessary to keep OpenAI alive.
- barkingcat 3y agoOf course microsoft is cool with it. They reinstalled sam as ceo specifically so he could do this.
- random99292 3y agoIt's not a bad strategy. It's keeping an eye on Sam Altman's agenda. He is a political animal that few people on HN seem to realize. What makes him great at his job isn't the typical techie path of becoming great at technical and building a great product. His ability is the ability to influence and gain power through good and bad means. Today's strategy may be good for employees; tomorrow maybe not. And no, he isn't thinking of what's best for employees. They just happen to be aligned at the moment. He is goal oriented regardless of the means. That's just my ill-informed opinion though.
- jrflowers 3y agoIt is very generous of OpenAI workers to help everyone else get rich. How nice it is to see when a mass of employees divest before what will surely be a hockey stick graph of unlimited growth
- j7ake 3y agoAs an employee, you definitely want to cash in on your first few million, then you can still be around when the hockey stick graph either goes unlimited or crashes to 0. Either way your future is secure.
- byyoung3 3y agoi think the stick has already been swung my friend
- arolihas 3y agoI think he is being sarcastic
- babl-yc 3y agoWere the Profit Participation Units (PPUs) part of this sale? I've heard that's what they are offering new hires but it's an unusual form of compensation as compared to traditional stock/options. Curious how it worked out for those folks. (apologies if this is explained in the article, I don't have access)
- xvector 3y agoCan someone correct me on why PPUs are not a scam when the company could simply reinvest all profit into R&D and mark it down as opex?
- whimsicalism 3y agoYou don't have to buy them.
- singron 3y agoIsn't stock also a scam since they don't have to issue dividends?
- whimsicalism 3y agoI believe that PPUs are all that is up for sale bc MS has 49% stake
- throwingitaway4 3y agoAnyone have any idea what order of magnitude this windfall is for the employees? We talking hundreds of thousands? Millions? Depending on when you got hired, this has gotta be one of the largest $increase/time to exercise options in history, no?
- karmasimida 3y agoDon't they have a 10x value cap or something? I asked chatgpt to research this on the web > The PPUs function similarly to Profit Interest Units (PIUs), granting employees a share in the company's profits rather than traditional equity. These units vest over four years, providing a long-term incentive for employees to contribute to OpenAI's success. A distinctive feature of OpenAI's PPUs is the growth cap; specifically, the PPUs are capped at a 10x growth of their original value. This means if an employee is given PPUs valued at $2 million, the maximum they can sell them for would be $20 million, ensuring that the rewards are substantial yet aligned with OpenAI's broader mission of equitable benefit . This valuation isn't exactly crazy if you ask me. OpenAI is valued at 30B about an year ago. Now 3x. If you bought nvidia stock last year this time, it also gets 3x.
- whimsicalism 3y agoIf you are an L4 (basically starting at OAI), the median PPU package is $315k [0] and that's valued from the last tender offer round. So that means an exit of ~$945k. [0]: https://www.levels.fyi/companies/openai/salaries/software-engineer?country=254 https://www.levels.fyi/companies/openai/salaries/software-en...
- almost_usual 3y agoGood payout but ~40% going to taxes. A nice down payment for a house in the Bay Area.
- jasonjmcghee 3y agoThat's assuming employees are allowed to sell 100% of shares. Often tender offers have a cap - e.g. 10%. Not saying that's the case here, just mentioning it might be much less than you think. That being said, it's hard for me to believe many employees don't have 10x the amount you mentioned, and will be able to get ~1m worth for 10% of their shares. I could be 100% wrong on both fronts - but it's my 2 cents
- adverbly 3y agoI don't understand ai valuations right now. NVDA has market cap of 1.8T and all they're doing is the middle part of the value chain. OpenAI is doing all the actual productization and they get a valuation of 20x less?
- marvin 3y agoI think everyone just disbelieves the stated goals of the AI startups as a matter of convention. OpenAI wants to create machines that are more capable at almost all economically valuable labor than humans. Such technology would be incredibly valuable. If it seems likely they’ll achieve it and actually return a significant part of the created value to investors, valuations that are crazy by old metrics will follow.
- fastasucan 3y agoOpenAI needs OpenAI to succeed. Nvidia just needs AI in general to remain in the spotlight, no matter what company.
- nabla9 3y agoOpenAI Global LLC was projecting $200 million of revenue in 2023 and $1 billion in revenue in 2024. Nvidia made revenue 45B in revenue 2023 and much more this year. OpenAI P/E is 415 Nvidia P/E is 95. OpenAI is valued over 4 times Nvidia based on revenue.
- tuyiown 3y agoNVDA controls production and distribution of a limited resource. OpenAI has no definitive control on the service they provide, eg any one that can provide more value or cheaper on Nvidia hardware is a direct competitor that may be able to afford to pay more for hardware, limiting OpenAI access to its critical ressource. Hence nvidia is the elephant that structurally takes the money, the ones that make the safest big returns on long term.
- thefounder 3y agoOpenAI is not public so there is less pump. You could say both are overvalued. Take the ride or wait the dump. It curious that even with the current rates we still have a lot of pump in the market.
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- lawrenceyan 3y agoWow, we’re really doing the singularity utopia or global nuclear warfare strategy.
- throwawaaarrgh 3y agoI'm not sure when investors are going to get that tech bros are fleecing them for billions and not making anything that actually helps people or the world. It's like there's no adults in the room. Just bobble head monopoly men hoping if they give away enough cash, someone's problem will finally get solved. But I am little jealous that I'm not also getting rich on flash-in-the-pan tech startups.
- CaptainFever 3y agoIs this related to OpenAI? OpenAI is obviously valuable to the consumers that use their products.
- nabla9 3y agoGoogle research is throwing plenty of R&D into the use of ML in chemistry, biology, and medicine. Those projects are long term and HN does not pay enough attention. But even Google management was scared that OpenAI will corner the market in a bullshit generation for consumers. They did bring some big guns from doing real work to fight back.
- dorkwood 3y ago> not making anything that actually helps people or the world Didn't you see Sora?
- bmitc 3y agoInvestors are the ones fleecing everybody. They have turned startups into pump and dump schemes.
- atleastoptimal 3y agoInvestors who can’t spot a scam run out of money. Natural selection. They aren’t dumb.
- dorkwood 3y agoTim Draper was an early investor in Theranos, continued to defend them even after reports showed their product was bogus, and he's still worth over a billion dollars.
- bmitc 3y agoPretty insane for a "non-profit". Yes, I know the non-profit owns the for-profit, but it's all clearly a cleverly (?) designed Trojan horse and smoke and mirrors to pump and dump like every other startup.