[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.

[senordevnyc]

Ah, so you have no idea.