OpenAI just became a little Opaque

While there is undoubtedly any number of books to be written, university case studies to be reviewed and no doubt a TV series to follow about what just happened at OpenAI, with the surprise departure of first Sam Altman and then Greg Brockman, it raised a few points that I immediately wanted to understand more about.

Sam Altman and Greg Brockman were founders of OpenAI and yet their positions were terminated by the OpenAI board. Not being familiar with the structure at OpenAI (and it seems to be a relatively unusual structure in that a non-profit entity owns OpenAI and has a board that is independent and separate to OpenAI) my immediate thoughts were:

  • how did the founders not have protected rights about their right to be on the board?
  • how did large investors (like Microsoft) not have any say in the decision?
  • how has this even been structured that this could be such a surprise – and has Sam Altman breached his contract as an employees and director so seriously that it can be terminated?

Usually, when acting for founders, entrepreneurs and/or investors the above would be some of the core protections and questions that you would be discussing and negotiating. The last thing a founder wants is to be removed without there having been good cause to do so and the last thing investors want is for boards to take decisions that might impact their investment. So advisers will usually spend a lot of time balancing these rights and the checks and balances as between investors and founders. This shock news – which very much seemingly turns on the specific structure of OpenAI – serves as a reminder to think about how you document rights, operation, management and control as a founder or as an investor.

It is also a reminder that thinking ahead to the future of the business and considering its final exit plan as soon as possible, as well as taking good advice about the various options and their implications, remains as important as ever. 

The takeaway may be that OpenAI was always meant to be a public charity and not to result in a large liquidity event – but I’d like to know if the founders really deeply thought about that at the start of the business and as they structured it, and whether they discounted other structures that may have given them different options. If that is the case and it was a definite choice based on advice and consideration then all worked well, regardless of what happens next for OpenAI. I hear that forthcoming episodes will be released weekly each Friday….

 

“How much of the future of OpenAI technology is going to be hamstrung because they made the mistake in the first place of placing that I.P. and that tech within the public charity in the first place,”

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