I just don’t understand why a non-profit was allowed to do this. Does this not set a precedent that non-profit doesn’t actually mean anything? You can just use a favorable structure until it’s time to enrich yourself.
I think it would be helpful for you to clarify which part of the chain you found objectionable:
- in 2015, OpenAI was founded as a Delaware nonprofit
- in 2017, OpenAI discovered the scaling laws and realized they needed far more compute (and thus money) than they had initially anticipated
- that discovery precipitated a series of negotiations between the founders on how to restructure OpenAI to raise more money for compute, ultimately resulting in Musk’s departure when the other founders would not give him control
- in 2018, OpenAI attempted to dramatically increase its fundraising despite Elon ending his contributions, but raised only $50M of its $100M goal
- in 2019, OpenAI created a capped-profit subsidiary in order to attract funding from commercial entities
- the nonprofit hired an independent assessor to value its IP, and then transferred that IP to the for-profit for fair value (around $60 million in 2019)
- the OpenAI nonprofit received a right to 100x capped return on its IP investment, or $6B, once the for-profit began making a profit. The nonprofit also received the right to the residual profit after all future investors reached their caps
- in 2019, OpenAI’s capped-profit received $1B in investment from Microsoft. OpenAI later received $2B from Microsoft in 2021 and $10B in 2023 as compute scaling continued
- Microsoft received a cap of 20x on its $1B investment, and 6x on its $2B and $10B investments, for a total of $92B target redemption
- in 2025, OpenAI’s for-profit entity recapitalized from a capped-profit entity with residuals flowing to the nonprofit to a traditional public benefit corporation with traditional equity
- in exchange for the residual (and 100x profit cap on the original $60M transfer) the nonprofit received a 26% equity stake in the for-profit. That stake is currently valued at around $200B
All of the above is from the record in Musk v. Altman, thanks to which we now have all the details. The upshot for the nonprofit is that it transferred IP worth around $60M in 2019 for rights to $6B in future profit, and then ended up with $200B in equity after the recapitalization. I see a lot of people in this thread assuming that the nonprofit no longer exists, which is not true.
I'm curious why you think that creating a for-profit subsidiary is objectionable, since it is extremely common for large nonprofits. A good example for this forum would be Mozilla, but many more were mentioned during the trial.
Also curious what conflicts of interest you have in mind.
Just because other organizations do it doesn't make it not objectionable, and there have been many threads on HN criticizing Mozilla's structure along similar lines.
In this case, my understanding is that e.g. Altman is on the nonprofit board and also makes big $$$ from the for-profit, which seems like a pretty big conflict of interest.
HN is of course not a monolith, but from my recollection most of the frustration and criticism w/r/t Mozilla is about its product strategy and executive team, not its corporate structure. Some other examples of nonprofits with for-profit subsidiaries include National Geographic, the AARP, and most research universities.
On Altman, the trial showed that Altman does not have any equity in the for-profit. He does have some indirect exposure through his investments in YC, since YC has a small position in OpenAI.
- in 2025, OpenAI’s for-profit entity recapitalized from a capped-profit entity with residuals flowing to the nonprofit to a traditional public benefit corporation with traditional equity
This is the egregious part. Before full for profit conversion it was worth $300B. Then after $850B.
A true fiduciary would set an auction and that would set the price for for profit valuation. And then all existing investors would keep the value of their positions, but would be diluted because capped profit is worth much less than unlimited profit and residuals.
But, they sold it to themselves for a bargain basement price. The nonprofit lost out on $300B or so. Maybe more.
It was not an arm’s length transaction. It was self-dealing.
I may not be fully understanding it, but if the value went from $300B to $850B because of the conversion, then you can’t claim that the additional value was stolen from the nonprofit. As long as the entity was unconverted, there was a limit to what the market would value it at. Is this off?
worse than that is the $60 million sale price, which was comically and absurdly low. Elon himself said he was willing to buy it for significantly more than that and the fact that it wasn't able to go to the highest bidder just shows that it was bullshit
Elon's purchase offer was in 2025, after the success of ChatGPT showed that OpenAI's IP (much if not most of it developed after 2019) could be commercially valuable. I think it is also debatable whether Elon's purchase offer was in good faith.
It was not clear in 2019 that OpenAI's IP would ultimately be worth billions. That was well before the current AI boom.
Wait, no, not at all. A non-profit shouldn’t have to take the highest bidder regardless. The whole _point_ of a non-profit is to act beyond purely short-term financial gains.
“Elon buying this doesn’t align with the mission” is a completely normal, reasonable, and healthy response for most non-profits.
What’s great is that we don’t need to speculate about a counter factual. He did end up building a chatbot! Whose defining differentiating feature is revenge porn.
A non-profit should act in its own individual best interest. If I had a non-profit for sheltering animals and one contractor told me it would cost a million dollars to build a new shelter, and another contractor, conveniently largely owned and controlled by me, said the same shelter would cost $20 million, don't you think there's a problem if you go with the $20 million option? I imagine this scenario is highly illegal.
But the decision is still subject to heavy scrutiny; in fact, more than with normal for profit corporations. It does not seem like the board acted in the best interests of the nonprofit here, they acted in their own.
Thanks for listing all this out. I took issue with it in theory, but now that I see it written out, I don't find any of it objectionable. People act we though the nonprofit doesn't exist anymore.
The OpenAI non-profit is now one of the biggest non-profits in dollar-denominated assets. If the goal was to make the non-profit really big and well-funded then that seems on track. But not clear to me what it would do to advance its mission.
They seem to think they need trillions in investment to reach AGI. Putting aside whether reaching AGI is feasible, it seems pretty clear how this move enables them to advance their mission, at least in their eyes.
This is super valuable, thank you so much. It makes it clear just how misinformed 99% of HN seems to be when ranting about how Altman perpetrated the greatest theft in history or some such bullshit (conveniently always failing to mention that he holds NO equity in OpenAI, despite how easy it would have been for him to do so).
I find it unsettling that a company who wants to eradicate the middle class's ability to make a living, possibly bring about the singularity (I don't think they'll accomplish it, but they want to), and are actively creating one of the most massive bubbles we've ever seen is somehow a "public benefit" company. Absolutely nothing they're doing is to the public's benefit.
How can something be both a bubble and also eradicate the middle class's ability to make a living? There are reasonable people making the case for both of these things, that investment in AI will fall flat and that AI will be too powerful. Coalition forces are pushing them together into an anti-AI camp, but there's a contradiction. Is it too powerful or not powerful enough?
It can represent a few peoples interests, who aren't middle class, and eradicate the middle class. AI can fall flat in its affect and benefit for most people, while helping a few people. It can thusly be powerful for a few people, and not powerful enough for most people. (I feel we may see special models that most people will never access, while a few get those most powerful models).
Did that answer your questions and address the contradictions?
You would not, and I would say what I am saying doesn't support nor deny a bubble's existence. I think that would be an error in thinking to conclude what I said supports bubbles.
I call AI a bubble because none of the finances make any sense. Everyone save for nvidia is losing money at an absurd rate (Anthropics "profitable" quarter is basically an accounting trick, not a real change). Circular financing is well known by everyone paying attention.
I said they want to eradicate the middle class, I didn't say they'd succeed at it. But your logic is faulty either way:
> How can something be both a bubble and also eradicate the middle class's ability to make a living?
Easy: it gets a lot of people fired because of AI psychosis in CEOs, then massively underdelivers on replacing them. Or it succeeds in replacing them, but ruins the economy because nobody can afford to buy anything anymore because they're unemployed. Or a million other scenarios.
To be clear, I don't think it will replace the middle class, I just think that's basically the intention. If it's not the intention, they're at the very least indifferent about the potential catastrophes. Again, they're claiming to be a "public benefit" company. They chose that route, and they're not living up to it.
It's a bubble because it massively overpromises and underdelivers, and it's a menace because what they're promising (and failing to deliver on) is bad for everyone save rich people, and it'll eventually be bad for them, too (hint: "taste" is not going to save you)
Other examples include Mozilla Foundation and Mozilla Corporation, the latter of which pays taxes on the money it gets from Google for default search engine placement, and the Smithsonian gift shop, which is a common pattern for museums all over the country. Novo Nordisk is another example, maker of Ozempic, and it’s the richest foundation in the world because it spun off a for-profit that then went public.
IRS requires nonprofits to pay taxes on “unrelated business income” and spinning it off to a for-profit subsidiary is the least risky way of managing that revenue.
Most nonprofits don’t have a mission that would benefit from a transition or a trillion dollar product to sell. There would be no real way to profit they wanted to.
This case was the first of its kind and it was never tested if OpenAI breached their charitable mission and the case was dismissed due to the statute of limitations.
Other than researchers, nobody from big tech would ever see themselves wanting to work at a charity / non-profit. The moment the VCs came into the picture then all the grifters poured in and AGI meant IPO.
> You can just use a favorable structure until it’s time to enrich yourself.
Are you saying researchers are less interested in quality of life than other people? If this was true, frontier labs wouldn’t need to offer 7 digit compensation packages to their researchers.
Nonprofit doesn't mean anything, since people can just route the profits into salaries. It's just another legacy regulation that may have once once had a societally-constructive purpose that wealthy people just use as one of the array of financial tools to help implement their latest scams. IMO, here are no legitimate nonprofits.
Western countries have been utterly strangled by nonprofits. Governments fund them with tax money in order to lobby themselves for legislation that financially benefits individuals in government and their donors. Obama even expanded the rules in the US to allow the government to unconstitutionally fund religious groups to accomplish functions that belong in government.
They should all be either reformed so that their internal bylaws and compensation are strictly regulated or probably preferably, they should simply be destroyed. If you only pay taxes on your profits (and we get rid of legal vehicles to hide profits) and your employees are obligated to pay taxes on their incomes, there's no need for a nonprofit status. If nonprofits want to engage in business (religions included), let them pay taxes. If they engage in charity, they won't have anything to tax.
> Western countries have been utterly strangled by nonprofits
To expand, there are two major problems with nonprofits in Western nations these days:
1. Governments use them as a way to do things that they themselves are not allowed to do ("it's private charities that do this!", ignoring the fact that the charities get >90% of their revenue from government grants)
2. Like you mentioned, the government grants to nonprofit back to politicians' campaign funds pipeline. Utterly egregious.
> Obama even expanded the rules in the US to allow the government to unconstitutionally fund religious groups to accomplish functions that belong in government
I wasn't aware of this being a big concern; more the other way around, like in my point 1.
One reform I would make would be to limit tax breaks to actual charitable activity within an organization, instead of a blanket tax break to the whole organization. For example if a Church/Hospital runs a soup kitchen and homeless shelter, those resources should be tax free, but maybe the rest of their activities shouldn't be by default.
Another reform I would make would be around independent governance and removing donor control of charities to reduce the number of sham Rich Guy foundations.
> Another reform I would make would be around independent governance and removing donor control of charities to reduce the number of sham Rich Guy foundations.
This one is tough. I mean, look at the Clinton Foundation. One reason to believe that $1 there is more effective than somewhere else is _because_ the Clinton’s are closely involved.
Of course, you get massive donations there because people want to influence the Clintons and/or _through_ the Clintons. Would those people / states donate otherwise? Would they donate to _better_ organizations? Maybe! Maybe not!
* Also I’m not saying the Clinton Foundation is more/less effective. You’re almost certainly better donating to GiveDirectly, but it’s not on its face ridiculous to think that they, specifically, could effect a _different_ type of change than others would have access to/influence over.
- in 2015, OpenAI was founded as a Delaware nonprofit
- in 2017, OpenAI discovered the scaling laws and realized they needed far more compute (and thus money) than they had initially anticipated
- that discovery precipitated a series of negotiations between the founders on how to restructure OpenAI to raise more money for compute, ultimately resulting in Musk’s departure when the other founders would not give him control
- in 2018, OpenAI attempted to dramatically increase its fundraising despite Elon ending his contributions, but raised only $50M of its $100M goal
- in 2019, OpenAI created a capped-profit subsidiary in order to attract funding from commercial entities
- the nonprofit hired an independent assessor to value its IP, and then transferred that IP to the for-profit for fair value (around $60 million in 2019)
- the OpenAI nonprofit received a right to 100x capped return on its IP investment, or $6B, once the for-profit began making a profit. The nonprofit also received the right to the residual profit after all future investors reached their caps
- in 2019, OpenAI’s capped-profit received $1B in investment from Microsoft. OpenAI later received $2B from Microsoft in 2021 and $10B in 2023 as compute scaling continued
- Microsoft received a cap of 20x on its $1B investment, and 6x on its $2B and $10B investments, for a total of $92B target redemption
- in 2025, OpenAI’s for-profit entity recapitalized from a capped-profit entity with residuals flowing to the nonprofit to a traditional public benefit corporation with traditional equity
- in exchange for the residual (and 100x profit cap on the original $60M transfer) the nonprofit received a 26% equity stake in the for-profit. That stake is currently valued at around $200B
All of the above is from the record in Musk v. Altman, thanks to which we now have all the details. The upshot for the nonprofit is that it transferred IP worth around $60M in 2019 for rights to $6B in future profit, and then ended up with $200B in equity after the recapitalization. I see a lot of people in this thread assuming that the nonprofit no longer exists, which is not true.