Microsoft eyes significant stake as OpenAI transitions to for-profit company
Microsoft is in high-stakes talks with OpenAI over the tech giant's equity stake, as the artificial intelligence (AI) firm prepares to become a for-profit company from a non-profit. Both the companies have consulted investment banks for the negotiations. According to The Wall Street Journal, Microsoft is hoping to get a large chunk of OpenAI's equity, in exchange for its $14 billion investment in the company.
Microsoft and OpenAI seek expert advice for negotiations
While Microsoft has roped in Morgan Stanley, OpenAI is being advised by Michael Klein, a former Citigroup banker and a close associate of OpenAI CEO Sam Altman. OpenAI has also hired Goldman Sachs for the process. The talks are not only about how much equity would be split, but also on governance rights in the newly formed company.
Microsoft's significant investment and OpenAI's valuation
Notably, Microsoft is OpenAI's biggest investor, having begun its massive cash injections back in 2019. The tech giant recently joined a fundraising round that brought in $6.6 billion for OpenAI, giving the AI firm an impressive $157 billion valuation. The high valuation comes even as OpenAI is expected to lose around $5 billion this year.
OpenAI's change to a for-profit corporation
OpenAI's board plans to restructure the company into a for-profit benefit corporation. This will mandate company leaders to weigh societal impact and profit in their decision-making process. Despite this, a non-profit component of OpenAI will remain and hold equity in the restructured company. However, the non-profit entity that has overseen OpenAI since 2015 will no longer be in control after this transition.
Tensions and future prospects amid OpenAI's transition
Notably, the equity negotiations come amid reported tensions between Microsoft and OpenAI. The tensions stemmed from Microsoft's hiring of AI pioneer Mustafa Suleyman, and disagreements over software protocols. Going forward, internal documents indicate that OpenAI's computing costs could rise to $37.5 billion annually by 2029, posing major financial challenges for the company in its new for-profit structure.
