OpenAI completes its restructuring, now controlled by a $130 billion nonprofit

OpenAI has completed its long-awaited corporate restructuring, emerging as a for-profit public benefit corporation (valued at $500 billion) controlled by a smaller nonprofit that instantly became one of the most well-funded philanthropies in the world.

The nonprofit (OpenAI Foundation) now holds $130 billion in equity in the for-profit company (OpenAI Group PBC), and that could grow further after a “valuation milestone,” according to the announcement.

OpenAI completed the transformation before a year-end deadline that could have blown up its strained partnership with Microsoft and risked losing a $20 billion investment from Stargate partner SoftBank.

Shares of Microsoft rallied after the announcement.

Microsoft and OpenAI jointly put out a statement saying Microsoft supported the new structure. They also laid out some new terms of the deal and described some dilution of Microsoft’s equity stake in the company:

“Following the recapitalization, Microsoft holds an investment in OpenAI Group PBC valued at approximately $135 billion, representing roughly 27 percent on an as-converted diluted basis, inclusive of all owners — employees, investors, and the OpenAI Foundation. Excluding the impact of OpenAI’s recent funding rounds, Microsoft held a 32.5 percent stake on an as-converted basis in the OpenAI for-profit.”

The Microsoft press release lists many new details of the partnership, which at times seemed to be doomed as the companies argued over various issues. Here are some of the key details:

• One point of contention was a trigger for renegotiation that would be initiated in the case that OpenAI achieves artificial general intelligence (AGI), an amorphous target if there ever was one. The new terms state that an independent expert will verify any declaration of OpenAI achieving AGI.

• Microsoft’s intellectual property rights for OpenAI’s models and products now extend to 2032, including any models created post-AGI, but excludes any consumer hardware products that OpenAI develops (like the gadget Jony Ive’s team is working on).

• Microsoft will keep its research IP rights (defined as “the confidential methods used in the development of models and systems”) until 2030, or the verification of a claim of AGI, whichever comes first.

• OpenAI is free to develop “some products” with third parties, but API products must use Microsoft’s Azure cloud services.

• Microsoft is now free to pursue AGI on its own, or with partners.

• The companies’ revenue-sharing agreement remains in place until verification of AGI.

• OpenAI will buy $250 billion worth of Azure services, and Microsoft gives up its right of first refusal to be OpenAI’s computing provider.

• OpenAI is free to offer US government and national security customers API access, regardless of cloud provider.

• OpenAI can now release open-weight models.

Founded in 2019, the newly flush OpenAI Foundation will dedicate an initial $25 billion to research health and curing disease, and will work on a “resilience layer” for AI to beef up cybersecurity and minimize risks for the technology.

With this restructuring secured, OpenAI is now potentially positioned for an IPO, which would help the company raise the $1 trillion it needs to meet its commitments to the flurry of deals it has signed this year.