OpenAI’s Restructured Status to Pave Way for IPO, CFO Says Amidst Microsoft Negotiations

OpenAI says its restructuring process places it in a better position in future IPO, Reuters reporter. However, the decision on OpenAI IPO will largely depend on the public markets and readiness of the company.

OpenAI’s Restructuring

OpenAI announced plans to convert its for-profit entity into a public benefit corporation (PBC) in December last year. The new structure is expected to balance shareholder interests with social goals as opposed to the non-profit status that focuses entirely on public good.

But this plan changed earlier this month after the AI startup gave the nonprofit entity control over its public benefit corporation. OpenAI did this by allocating its nonprofit entity the majority stake. However, the company will still allow the for-profit entity to raise additional capital in order to compete in the global AI race. Speaking at the Dublin Tech Summit, OpenAI Chief Financial Officer Sarah Friar said the PBC could pave the way for an IPO.

“A PBC gets us to an IPO-able event, if and when we want to. Nobody tweeted in this room that Sarah Friar just said anything about OpenAI ultimately going public. I did not. I said it could happen.”

When asked which factors would determine OpenAI’s stock market debut, Friar said planning an IPO would require the company as well as the market to be ready.

“You can show up at the altar all ready to go, and if the market’s not ready for you, yeah, you’re just out of luck. Which is why you have to build a company that can be sustainable and safe regardless of where the public markets are, how open that window is. You definitely need some sense of predictability to be a public company. The market will put up with a certain degree of unpredictability. Particularly when growth is high, but the market doesn’t really love it,” Friar added.

Future Energy Requirements

OpenAI’s CFO statement also gave an indication of the huge scale of capital that the startup could require. According to Friar, a 1 gigawatt data center costs about $50 billion. OpenAI’s ambition and energy appetite in the next few years could see its energy needs rise to about 10 gigawatts.

The CFO highlighted the AI search market, which is growing rapidly, as a priority. She said that OpenAI is focused on developing its next big product in this area, even as it pursues energy efficiencies.

“The search market is becoming a big market. In that world, I don’t really want people spending an inordinate amount of time trying to save an extra 1% when I would rather they went out and kind of built the next state-of-the-art product.” Friar said.

Microsoft’s Reservations

Microsoft is one of the major stakeholders that has not agreed to OpenAI’s proposed $260 billion corporate restructuring. As the AI startup explores the IPO idea, it has commenced a high-stakes negotiation with the software giant. The Windows maker has invested $13 billion in OpenAI to date.

OpenAI’s ambitions have increased competition with its biggest financier. In recent years, the AI startup has targeted enterprise customers with AI products while seeking partners like Japan’s SoftBank and Oracle to build its vast computing infrastructure. The latest multi-billion dollar negotiation is designed to enable OpenAI to unveil its IPO while protecting Microsoft’s access to advanced AI models.

A central issue in the negotiation relates to how much equity Microsoft will receive in the restructured OpenAI entity in exchange for its investment. According to people familiar with the negotiations, the two companies are also revisiting the terms of a broader agreement first signed in 2019, when Microsoft made its initial $1 billion investment.

That deal, which runs through 2030, outlines Microsoft’s access to OpenAI’s intellectual property—such as its models and products—and its share of revenue from product sales. CEO Sam Altman says his long-term ambition is to develop artificial general intelligence.