OpenAI to Expand 'Capped For-Profit' Status to Attract Major Interest

September 02, 2024 06:33 PM AEST | By Team Kalkine Media

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OpenAI to Expand 'Capped For-Profit' Status to Attract Major Interest — Image source: shutterstock

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OpenAI is reportedly exploring a major overhaul of its corporate structure in preparation for a forthcoming funding round that could value the company at over $100 billion. According to a Financial Times report, the artificial intelligence firm is contemplating adjustments to its existing "capped for-profit" model, which might involve removing the profit caps currently imposed on its investors.

The discussions, as reported by unnamed sources, suggest that {Open} (OPEN) AI is eliminating these caps to provide investors with access to a greater share of the profits generated. This restructuring is aimed at making the company more appealing to backers as it plans a new funding round.

The upcoming round is expected to be led by Thrive Capital, with an investment of approximately $1 billion. Other major technology firms, including Microsoft, Apple, and Nvidia, are also anticipated to participate. Microsoft, which already holds a minority stake in OpenAI, may see changes in its investment terms with the introduction of new investors and the company’s updated valuation.

Currently, OpenAI operates under a dual structure, consisting of a nonprofit organization and a capped for-profit entity. The nonprofit arm focuses on its mission-driven objectives, while the capped for-profit side is designed to generate revenue. Under this model, investors like Microsoft can only receive a limited return on their contributions due to the profit caps.

If OpenAI proceeds with removing these caps, it would allow for greater flexibility in profit distribution, enhancing the attractiveness of the company to major investors. The impact of this change on the nonprofit aspect of OpenAI remains uncertain. It is unclear how the firm will balance the need to satisfy profit-oriented stakeholders with its commitment to its mission of advancing AI for the benefit of humanity.

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