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“Our plan is to transform our existing for-profit into a Delaware Public Benefit Corporation (PBC) with ordinary shares of stock…The non-profit’s significant i

by az226 2y ago

“Our plan is to transform our existing for-profit into a Delaware Public Benefit Corporation (PBC) with ordinary shares of stock…The non-profit’s significant interest in the existing for-profit would take the form of shares in the PBC at a fair valuation determined by independent financial advisors.” The details here matter and is bs. What should take place is this, OpenAI creates a new for profit entity (PBC, or whatever structure). That company sets an auction for 5-10% of the shares. This yields the valuation. The new company acquires the old company with equity, using the last valuation. So say $30b is raised for 10%, means $300B. So the $160B becomes like 53% and then 63% with the 10% offer. So the non-profit keeps 37% plus whatever it owns of the current for profit entity. Auction means the price is fair and arms-length, not trust me bro advisors that rug pull valuations. I believe on this path, Elon Musk has a strong claim to get a significant portion of the equity owned by the non-profit, given his sizable investment when a contemporaneous valuation of the company would have been small.

jefftk 2y ago
> Elon Musk strong claim to get a significant portion of the equity owned by the non-profit, given his sizable investment when a contemporaneous valuation of the company would have been small Sorry, what's the path to this? Musk's 'investment' was in the form of a donation, which means he legally has no more claim to the value of the nonprofit than anyone else.
- sobellian 2y ago
  So there's really no legal recourse if a 501c3 markets itself as a research institute / OSS developer, collects $130MM, and then uses those donations to seed a venture-backed company with closed IP in which the donors get no equity? One that even competes with some of the donors?
  - jefftk 2y ago
    There is recourse, in that a 501c3 is limited in what it can do with it's assets: it must use them to advance its charitable purpose. In this case the OpenAI board will attempt to make the case that this approach, with partial ownership of a public benefit company, is what's best for their mission. If donors got equity in the PBC or the owned PBC avoided competing with donor owned companies this would not be consistent with the non-profit's mission, and would not be compliant with 501c3 restrictions.
    - sobellian 2y ago
      Right, I pointed out the competition to show that the donors are suffering actual damages from the restructuring. I don't think any of the critics here seriously expect the PBC model to fulfill the nonprofit's stated mission in any case. This is not just an issue for the change that OpenAI is contemplating right now, but also the capped for-profit change that happened years ago. If that's found to be improper, I'm curious if that entitles the donors to any kind of compensation. ETA: looking into this, I found the following precedent (https://www.techpolicy.press/questioning-openais-nonprofit-status/ https://www.techpolicy.press/questioning-openais-nonprofit-s...). > A historic precedent for this is when Blue Cross' at the time nonprofit health insurers converted into for-profit enterprises. California Blue Cross converted into what's now Anthem. They tried to put a small amount of money into a nonprofit purpose. The California Attorney General intervened and they ultimately paid out about $3 billion into ongoing significant health charitable foundations in California. That's a good model for what might happen here. So my guess is there's no compensation for any of the donors, but OpenAI may in the end be forced to give some money to an open, nonprofit AI research lab (do these exist?). IANAL so that's a low-confidence guess. Still, that makes me so queasy. I would never donate to a YC-backed nonprofit if this is how it can go, and I say that as a YC alum.
    - az226 2y ago
      It’s also not in the non-profit’s interests to convert the shares to ordinary shares at trust me bro conversion rates.
- deleted 2y ago
  [deleted]
- az226 2y ago
  The argument was because they’ve converted the nonprofit to a for profit, which enriches the employees and investors and doesn’t serve the nonprofit or its mission, the nonprofit was only so in disguise and should be viewed as having been a for profit all along. So the donation should be viewed as an investment.

by az226 2y ago

jefftk 2y ago

> Elon Musk strong claim to get a significant portion of the equity owned by the non-profit, given his sizable investment when a contemporaneous valuation of the company would have been small Sorry, what's the path to this? Musk's 'investment' was in the form of a donation, which means he legally has no more claim to the value of the nonprofit than anyone else.

sobellian 2y ago
So there's really no legal recourse if a 501c3 markets itself as a research institute / OSS developer, collects $130MM, and then uses those donations to seed a venture-backed company with closed IP in which the donors get no equity? One that even competes with some of the donors?
- jefftk 2y ago
  There is recourse, in that a 501c3 is limited in what it can do with it's assets: it must use them to advance its charitable purpose. In this case the OpenAI board will attempt to make the case that this approach, with partial ownership of a public benefit company, is what's best for their mission. If donors got equity in the PBC or the owned PBC avoided competing with donor owned companies this would not be consistent with the non-profit's mission, and would not be compliant with 501c3 restrictions.
  - sobellian 2y ago
    Right, I pointed out the competition to show that the donors are suffering actual damages from the restructuring. I don't think any of the critics here seriously expect the PBC model to fulfill the nonprofit's stated mission in any case. This is not just an issue for the change that OpenAI is contemplating right now, but also the capped for-profit change that happened years ago. If that's found to be improper, I'm curious if that entitles the donors to any kind of compensation. ETA: looking into this, I found the following precedent (https://www.techpolicy.press/questioning-openais-nonprofit-status/ https://www.techpolicy.press/questioning-openais-nonprofit-s...). > A historic precedent for this is when Blue Cross' at the time nonprofit health insurers converted into for-profit enterprises. California Blue Cross converted into what's now Anthem. They tried to put a small amount of money into a nonprofit purpose. The California Attorney General intervened and they ultimately paid out about $3 billion into ongoing significant health charitable foundations in California. That's a good model for what might happen here. So my guess is there's no compensation for any of the donors, but OpenAI may in the end be forced to give some money to an open, nonprofit AI research lab (do these exist?). IANAL so that's a low-confidence guess. Still, that makes me so queasy. I would never donate to a YC-backed nonprofit if this is how it can go, and I say that as a YC alum.
  - az226 2y ago
    It’s also not in the non-profit’s interests to convert the shares to ordinary shares at trust me bro conversion rates.
deleted 2y ago
[deleted]
az226 2y ago
The argument was because they’ve converted the nonprofit to a for profit, which enriches the employees and investors and doesn’t serve the nonprofit or its mission, the nonprofit was only so in disguise and should be viewed as having been a for profit all along. So the donation should be viewed as an investment.