[granzymes]

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.

[dooglius]

The objectional part would be:

- in 2019, OpenAI created a capped-profit subsidiary in order to attract funding from commercial entities

Particularly if it creates a conflict of interest for anyone making decisions on behalf of the nonprofit

[granzymes]

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.

[dooglius]

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.

[granzymes]

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.

[az226]

He tried to get 11% equity but the trial made that impossible.

[senordevnyc]

Source?

[az226]

100% disagree.

- 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.

[senordevnyc]

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?

[az226]

All investors owned profit participation units with limited (capped) profits and limited return size.

After conversion, they all own unlimited profit, unlimited return shares. A lot more valuable.

The nonprofit lost the value between the two.

[93po]

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

[granzymes]

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.

[tyre]

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.

[93po]

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.

[achierius]

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.

[senordevnyc]

How did the board personally benefit?

[93po]

How much did people on the board benefit from OpenAI going for-profit? Either directly by owning shares of the new for-profit, or knowing they eventually would, or by business connections to the new for-profit entity? I imagine most or all of them.

[55555]

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.

[beering]

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.

[senordevnyc]

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.

[bix6]

The whole process has been a circus but I found the AG waiver rather frustrating. Nothing like negotiating with a charity to get an IOU that it’ll be charitable. https://oag.ca.gov/news/press-releases/attorney-general-bont...

[senordevnyc]

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).

Appreciated!

[overgard]

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.

[bwhiting2356]

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?

[mannanj]

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?

[bwhiting2356]

The parent comment referred to AI as a bubble, and what you're describing I would not call a bubble.

[mannanj]

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.

[overgard]

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.

[bwhiting2356]

Valid. That's also what I would call a bubble. But if this prediction is true, that not enough people will buy their tokens to meet their projections, then it also won't be automating away everyone's jobs. That's the contradiction.

[overgard]

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)

[bwhiting2356]

Big layoffs so far have been at legacy companies. Hiring at startups is strong, and the unemployment rate is steady at 4%.