[hodder]

Can someone explain to me why California would believe Sam Altman plans to stay in California? This is a weak handshake agreement that could easily be flipped post IPO. The very flip from non-profit to IPO shows he will do what it takes for OpenAI to "succeed", so why would the geographical location be any more permanent than corporate structure. This isnt a diss to Sam either, it just shows he is motivated by whatever is best for the entity at any given time.

They might stay in California, but that probably has far more to do with available researchers and employee preferences than some agreement with the Attorney General.

[Hansenq]

In any negotiation, you need to understand what leverage either side has. In this case, CA could block the conversion, and OpenAI could leave California. Both are possible but extremely unlikely outcomes! So the whole point is to take these unlikely outcomes to the table, negotiate in good faith, and come out with an agreement.

So California needs to believe that OpenAI will stay in California just as much as OpenAI needs to believe that CA won't block the conversion (or impose other onerous regulations around AI). So yes, it's possible to speculate about whether or not people are sincere in their motivations, but when you need to make a deal, there needs to be a measure of good faith and trust on both sides in order to make something happen.

And in this case, both sides are incentivized to make the deal. OpenAI wants to be a PBC in order to access more capital, and California wants OpenAI to be a PBC so that it can IPO so that all employees (all of whom are likely CA residents), will sell stock, which can then be taxed as CA income.

[johnrob]

If I am understanding things correctly, OpenAI could leave in the future - but CA can’t retroactively block the conversion in that case.

[overfeed]

California is home to 1 in 8 Americans, and likely a much higher fraction of AI researchers, users and partner organizations to OpenAI (like Nvidia). The California AG has plenty of leverage beyond blocking/reversing the conversion. What leverage will OpenAI have after "leaving"[1] the California?

1. They're guaranteed to have an engineering office in the SF Bay. Not many of those folk will agree to relocate to Texas/Miami.

[Jackpillar]

Yup the Tesla treatment. Can change HQ's all you want but the main engineering work, brains, and talent will be at a HQ in California no matter what. Sam will probably do this for brownie points with the current administration, it will be politicized news for a cycle, but after the dust settles the majority of non-admin people will still be working unchanged out of CA.

[hyperadvanced]

That’s assuming Altman is sincerely going to keep trying to develop “AGI” and not try to turn OpenAI into a profitable business. You don’t need AI researchers if you get good enough video generation and pornbots to become immortally wealthy and say fuck the rest. If this is the case, OpenAI could be a completely done product, all that’s left to do is stop spending so much money on SG&A and get those revenue streams cranking.

[rendaw]

What's stopping OpenAI from offering telework? AI isn't dealing with high security or particularly sensitive data (that developers need to actively access - training data is all public or stolen works) and it's not a hardware product.

[groby_b]

Yup, but the IPO will still have happened in CA, and there's going to be a tax windfall from that.

It's about a moment in time, not an "in perpetuity" agreement.

[giancarlostoro]

Unless you're Universal and Marvel, leaving Disney unable to buy out Universal's contract with Marvel, and unable to use classic comic book characters because the parks too close to Universals. Still cracks me up.

[cma]

Not if the big holders aren't residents, they can move away just before like Rogan with his Spotify deal, or Jonathan Blow just before a game release after developing in California and going to public college there, etc.

Since it's a non-profit still holding it any gains to the non-profit entity upon the conversion don't go to California, and principal stakeholders can move away. Other funds raised from the IPO can be invested in other states untaxed (long term datacenter leases instead of booking the capital of building one) until they move the company away I think.

There will probably be a lot of smaller stakeholders that stay with a lot of money for the state, and California at least doesn't do the $15 million QSBS so they may get a lot from that tail of employees. A large portion of this tail of lower compensated employees may get laid off due to AI replacement before IPO and lose a lot of unvested years, if we are to believe OpenAI's own claims about timelines for job replacement in that field at lower levels.

[tedd4u]

I'd recommend anyone expecting to profit from OpenAI stock and aiming to avoid California taxes to look into the subject in depth with paid advisors. The California FTB is not stupid or naïve and has a history of successfully getting paid for stock that vested with a California nexus, even if the beneficiary moves out of state. Good luck!

[cma]

You're right, it's harder with vesting stock compensation than other things you build up over time like an audience or a developing a game over a long span.

[mlmonkey]

Take a look at Shohei Ohtani's contract.

[JumpCrisscross]

> Can someone explain to me why California would believe Sam Altman plans to stay in California?

The simple answer is unless developing LLMs becomes commoditised, the best place in the world to do it is in San Francisco. You don't take your manufacturing business out of Shenzhen without very good reason.

[terminalshort]

Seems a little easier than that, though, because there are no supply chains involved (other than for the data centers, but those are already not in SF). Why else would the CA government be worried?

[standardUser]

There's books written about the Bay Area and the factors that make (or made) it uniquely suited for developing new technologies. There's even college courses about it. Some of it's surely provincial fluff, but it's undeniable that California has been an essential incubator for a whole series of world-changing, fortune-making technologies.

[terminalshort]

I don't want to downplay the network effects here, but it's in CA entirely by coincidence. SV is in CA because William Shockley's family is there, which is why he founded Shockley Semiconductor there. It could have been somewhere else. The 2nd largest tech hub is in Seattle. It's there because that's were Bill Gates is from. Is SF the best place to start a startup if you want in office talent in 2025. 100% yes, but that has nothing to do with the Bay Area and everything to do with accidents of history.

[JumpCrisscross]

> that has nothing to do with the Bay Area and everything to do with accidents of history

I think you’re wrong. But that’s irrelevant. The fact that it exists now is what gives it staying power. One of the surest bets I’ve seen in seed and Series A investing is when a market has one or two competitors in a cluster and the rest outside. The insiders win. Always. It’s the easiest bulldozing strategy that exists.

[csomar]

> I think you’re wrong. But that’s irrelevant.

It's on you to prove the parent wrong and you provided nothing to explain why the Bay Area is special beyond history/staying power.

[CPLX]

It goes back way way further than that. The special mix of government funded technology, ruthless entrepreneurship, and social engineering predates Shockley by almost 100 years.

Start by figuring out who Leland Stanford is and how he got rich. Read the book ‘Palo Alto’ if you’re looking for a good starting point.

[vlovich123]

Yeah it’s quite bold to suggest that Shockley would have done the same thing outside the environment of the Bay Area rather than that someone other than Shockley would have done what he did in California if he wasn’t there or that even if he did it outside California that people inside California still industrialize it. It’s a very individualistic view of progress which is uniquely American and unlikely to capture how stuff happens given that multiple discoveries often happen simultaneously by people working on the problem (eg calculus and Newton vs Leibniz).

The truth is the Bay Area has structural reasons why SV happened and why the same thing has failed to replicate to any significant degree outside the Bay Area.

[bix6]

Just borrowed thanks for the rec!

[ac29]

Yep, I would highly recommend reading the Secret History of Silicon Valley for those that are interested: https://steveblank.com/secret-history/

[shuckles]

Shockley Semi was founded 16 years after Hewlett Packard, so you have to keep reaching backwards.

[Hansenq]

Not entirely by coincidence. Yes Shockley was from CA, but as late as the 1980, two places were competing to be the center: Boston's Route 128 ("America's Technology Highway") or Silicon Valley.

Silicon Valley won out because the CA constitution explicitly prohibits non-competes (which MA allows), leading to more rapid innovation. Very likely the infamous Traitorous Eight who left Shockley Semiconductor to found Fairchild could not have done that if noncompetes could be enforced.

[fragmede]

Non-competes are one aspect, absolutely. However that's can't be the whole story because that applies to all of California and it's a decently sized state, with a lot of other areas. Any part of the southern California basin, San Diego, and Sacramento. If we include smaller areas (because silicon valley was once just apple orchards, that list gets longer.

[okdood64]

> There's books written

Which?

[booi]

except developing AI is very much a knowledge exercise with very little dependency on location.

You don't move your manufacturing business out of Shenzhen because the entire hard supply chain from mining, refining, manufacturing, test, ship and trade are all there. You can't move a refinery that easily much less the entire supply chain.

[brokencode]

Sure, but most of the country’s AI talent is concentrated there. Not to mention venture capital.

What’s the advantage of moving? Maybe lower taxes and a cheaper rent.

That seems like a small price to pay compared to the hundreds of billions they’re putting into data centers.

[alfalfasprout]

They're concentrated there because they've been asked to concentrate there. That can change on a dime.

It's not like data centers are mainly in SF.

[hamdingers]

You've got it backwards.

Well paid engineers congregate in California because it's a nice place to live if you can afford it.

Therefore if you want to hire the best engineers, and want an in-office work culture, you need to go to California.

[terminalshort]

Well paid engineers congregate in CA because that's where the companies that hire well paid engineers congregate, and they (mostly) want those well paid engineers to come to the office every couple of days. I don't know how you could get the causality so completely backwards on this.

[AdamN]

Depends on the type of engineer - NYC for fintech is also a top spot, Boston for robotics, etc...

[ozozozd]

Anecdotal evidence: I moved to CA twice as an engineer.

Once to get my masters after college. Stayed for 13 years. Left during COVID.

Second time to raise kids.

Our reasons include weather, intellectual atmosphere, safety (in many regards), schools, and job opportunities.

The geo area sandwiched between Berkeley and Stanford is only rivaled by Boston. You think Stanford and Berkeley are in the Bay because they’re told to?

And I would also question: what’s the point of living in US if you’re not in California? Once you decide to not live in CA, a bunch of other countries rank better than other US states. Such as Canada, Australia, New Zealand.

If I were to not live in CA, even the imperial units would quickly become annoying.

[FajitaNachos]

How many other places, inside and outside the U.S., have you lived?

[vessenes]

I think you're wrong. The concentration is for a host of reasons. Witness the large number of cities and countries that have tried to create a local Silicon Valley competitor unsuccessfully over the last 25 years.

The data centers I think prove this point, and disprove yours -- huge spend has gone into data centers, but places like Wenatchee remain stubbornly not Silicon Valley.

Intel has not made Portland into SV. Austin, while a tech hub and one of the US supply chain centers for hardware, is multiple orders of magnitude less productive than SV for tech startups. Productive as in numbers of unicorns, total value creation, however you want to spin it.

[shuckles]

> That can change on a dime.

People tried very hard to change it between 2020-2023 and utterly failed.

[bchasknga]

Cries in the number of "next Silicon Valley" in the last 30 years.

[yellow_postit]

The Texas Stock Exchange launches next year and I predict we will see a lot of tech try to move to launch there given txse claim to have lower compliance and less esg needs.

[JumpCrisscross]

> Texas Stock Exchange launches next year

The TXSE was launched by an energy magnate [1] and "is financed by institutional investors including Charles Schwab, Fortress, BlackRock, and Citadel Securities" [2]. It's a direct response to the NASDAQ and NYSE putting their feet down on carbon emissions.

Nothing about its structure requires a company be incorporated in Texas much less based there [3]--those restrictions would go against the reason it was founded.

[1] https://en.wikipedia.org/wiki/Kelcy_Warren

[2] https://en.wikipedia.org/wiki/Texas_Stock_Exchange

[3] https://www.hunton.com/insights/legal/a-comparative-analysis...

[everfrustrated]

I learned recently that Nasdaq imposes DEI on companies as a requirement of listing.

[kasey_junk]

The 5th circuit struck those rules down last year.

[nradov]

I doubt it. The state where a company is incorporated or has its headquarters located doesn't impact where it can list shares. There are several foreign companies with no significant US operations which are listed on US stock markets just to gain access to capital.

[kasey_junk]

Not to mention that the actual trading will happen in New Jersey

[seanhunter]

You know that Nasdaq isn't in Silicon Valley right? Lots of companies are based in the valley, listed in either CA or Delaware and go on to list in NYC now. There's no compelling reason for them to move to Texas.

As for the compliance thing it remains to be seen, but generally companies in low-compliance jurisdictions trade at a "fraud discount" to compensate investors for the likelihood of untoward shenanigans that would be prevented by that compliance.

[fragmede]

Stock exchange aside, being able to build buildings without getting held of years or even decades for an endangered tree frog, and also employees being able to afford housing are kind of important to companies. Texas has its downsides, for sure, but it would be silly to pretend there aren't other reasons for companies to move there that have nothing to do with the new stock exchange.

[afavour]

It’s frauds all the way down

[vessenes]

downvoted -- this is a low quality comment, and worse, it's uninformed. Texas may be lower reg than NASDAQ at launch, and it may compete for business that way, and consumers may or may not like this and may or may not benefit from it.

However, post Sarbox US is vastly more regulated than the markets that "built" Silicon Valley, and there are many costs to corporations, founders and employees of that heavier regulation -- including a radically less friendly public capital market for companies worth hundreds of millions of dollars.

[BobaFloutist]

That still doesn't explain the value of Sam Altman's pinky promise.

[JumpCrisscross]

> doesn't explain the value of Sam Altman's pinky promise

The MOU [1] requires OpenAI "provide at least 21 days’ prior written notice to the Attorney General before consenting to: (a) a change of control of the PBC; (b) any change to the PBC mission as set out in the PBC Delaware charter; (c) any amendment to the PBC Delaware charter that would remove the NFP’s sole right, as holder of the Class N shares, to appoint PBC directors or otherwise reduces in any material respect the rights of the Class N shares; or (d) the relocation of the headquarters of the NFP or PBC outside of California" [1].

The meat appears to be in the agreements by OpenAI to not change its ownership and control structure. California's real leverage would be in re-opening this dispute, though ¶ 22 seems to water down that power somewhat. (Maybe go after the donors?)

[1] https://oag.ca.gov/system/files/attachments/press-docs/Final... ¶ 19

[wubrr]

The location you're physically sitting in doesn't really matter. Saying 'san francisco cause san francisco' is also kinda boring and meaningless.

[JumpCrisscross]

> location you're physically sitting in doesn't really matter

Of course it does.

The benefits of proximity to business clusters [1] is well researched [2]. There is no evidence remote work has dampened that tendency; if anything, as evidenced by AI, the effect seems to have increased.

[1] https://en.wikipedia.org/wiki/Business_cluster#Cluster_effec...

[2] https://www.isc.hbs.edu/competitiveness-economic-development...

[wubrr]

You're linking to pre-covid studies, that mention some types of benefits (for specific reasons like logistics benefits for businesses relying on physical materials/goos, or physical access to people for the purposes of networking), for some kinds of industries, and also mention that these benefits are not seen for some industries.

> Sometimes cluster strategies still do not produce enough of a positive impact to be justified in certain industries.

Let's take a step back and look at the fundamentals of a tech company who's employees are remote - what are the specific benefits of having a San Francisco office?

[JumpCrisscross]

> linking to pre-covid studies

I'm linking to studies summarising a century of work. There is no evidence Covid changed this.

Exhibit A for Covid having not changed this is the continuing supremacy of Silicon Valley (tech), Shenzhen (manufacturing) and New York (finance) as industrial clusters that others have tried to replicate (everyone, America and Miami, respectively) and failed.

> Let's take a step back and look at the fundamentals of a tech company who's employees are remote - what are the specific benefits of having a San Francisco office?

Proximity to investors. Proximity to customers. Proximity to a skilled employee pool. Proxomity to acquirers. (A lot of deals happen at cocktail parties and ski trips.)

By the way, I'm not arguing anyone needs an office. Just people physically and and proximate to the cluster.

[wubrr]

> Exhibit A for Covid having not changed this is the continuing supremacy of Silicon Valley (tech)

You mean like when China built chatgpt 4 in a weekend and open-sourced it for giggles?

> Shenzhen (manufacturing)

..or you mean how US manufacturing 'clusters' almost completely disappeared/replaced by Chinese ones?

> Proximity to investors. Proximity to customers. Proximity to a skilled employee pool. Proxomity to acquirers.

Right, cause you have to physically pet every investor on the head to fundraise, your remote employees must be in san fran cause network latency interferes with their windows remote desktop workflow, and, for some reason, you have to be physically close to your customers when you're selling your web-only llm wrapper saas.

[vessenes]

This is the opposite of true. It's actively wrong. Location is almost everything; people move to financial and tech centers for a reason -- it matters where you are and who you know.

[wubrr]

nah

also, where you are and who you know are very different things

[JumpCrisscross]

> where you are and who you know are very different things

Different but related. Getting a purposeful introduction involves a lot more friction than being invited to someone's home for dinner with their colleagues and contacts.

[wubrr]

You seem to assume dinner parties and in-person social engineering is the key to success.

I guess I have a different opinion - the tech, the product, the efficiency is the key to success.

[Jackpillar]

This is so funny to imply that you (living in East Jesus, Texas) have a better or similar opportunity to me (living in SF) in making more relationships and connections to AI related companies, engineers, investors, customers, acquirers, scientists, etc.

[wubrr]

I live a lot further from SF than Texas, yet I've been working fully remote for SF tech companies (among others) for 10+ years.

If I need to meet someone in person, I make a trip (~few times a year)

It's true that I can't brownnose/service random tech talking heads in person on a daily basis tho, which is what I assume you mean by 'relationships and connections' lmao

[dragonwriter]

> Can someone explain to me why California would believe Sam Altman plans to stay in California? This is a weak handshake agreement that could easily be flipped post IPO.

It is not a “handshake agreement”, but binding written agreement with terms constraining the governance of the restructure OpenAI entities.

https://oag.ca.gov/system/files/attachments/press-docs/Final Executed MOU Between OpenAI and California AG re Notice of Conditions of Non-Objection %2810.27.2025%29 %28Signed by OpenAI%29 %28Signed by CA DOJ%29.pdf

[bix6]

Page not found

[harmmonica]

If they're still based in CA when they IPO at least those initial taxes will be collectible in state (assuming they're structured in a way where the IPO is a taxable event for the leadership and staff). Pretty sure the taxes collected from OpenAI will be the single biggest IPO tax windfall ever (correct me if I'm wrong, but I can't think of a bigger one).

[cosmicgadget]

We're finally going to get that bullet train.

[harmmonica]

Oh man know I know I shouldn’t say it but that’s a genius reply! Thanks for the (depressing) laugh.

[int_19h]

Yeah, but it'll be run by ChatGPT. ~

[s3r3nity]

lol if you think $ was the barrier there, I have a few bridges to sell you too…

[mmooss]

What are the taxes on an IPO?

It's capital gains, which aren't taxed until the capital (IPO stock) is liquidated. I'm sure some people will liquidate their stock promptly but I expect that most will hold it, expecting further growth, and that the big investors, including Altman, will hold onto it for because of the same reason, because they need to sell optimism (what would people think if Altman or Microsoft sold a significant chunk of stock?), and because OpenAI needs lots of assets to build datacenters and buy power.

[dragonwriter]

stocks sold by the company in an IPO aren’t taxable income. Pre-IPO stocks that people liquidate because there is now a liquid market and they want to realize some gains will generate some, but I don’t know how you’d predict the magnitude of that.

[gyomu]

Perhaps it’s not so much that they believe he’ll stay in California long term if he gets what he wants; more that they do believe he’ll leave in the short term if he doesn’t.

[tw04]

I’m pretty sure Sam is motivated by whatever is best for Sam, not OpenAI.

[qwertox]

> whatever is best for the entity

Whatever is best for his ego.

[terminalshort]

Can someone explain to me how staying in CA has anything whatsoever to do with whether or not they IPO? Because it seems like it should have absolutely nothing to do with it. (Linked article is a paywall, so I can't read it.)

[Hansenq]

OpenAI needs to IPO because they want to access the public capital markets to fund their AI investments, more deep-pocketed investors are wary of investing in a LLC, and for liquidity, etc.

OpenAI needs to convert to a C-corp in order to IPO.

OpenAI needs the CA Attorney General's approval to convert a LLC into a C-Corp because the LLCs is headquartered in CA and incorporated with many CA laws.

So the article is making the point that OpenAI likely got the CA Attorney General's approval for the conversion because they promised to stay in CA (whether or not that's actually true).

(or support journalism and pay to read the article)

[throwaway294729]

> This isnt a diss to Sam either, it just shows he is motivated by whatever is best for the entity at any given time.

This is the kind of weird rationalist (?) thing that people say a lot these days to justify bad behaviors: in this case Sam Altman behaves like a pathological liar.

[make3]

In the US, one has to remember that megacorps usually end up winning, as people mostly only care about money and blindly supporting corporations is seen as pro-economy. There are also no limits on political financial contributions, and people have really short attention spans.

Politicians taking the superficial short-term win, as they will end up giving in to the megacorp anyway, is not surprising to me.

[philipallstar]

> and blindly supporting corporations is seen as pro-economy

These clumsy stereotypes are so pointless.

[afavour]

It’s a broad statement but I wouldn’t say it’s an incorrect one.