One question has loomed over OpenAI investors for years: How would they generate a return on their investment? The ChatGPT maker is a nonprofit that capped the potential returns of early backers in its for-profit arm, such as Khosla Ventures and Microsoft, and would prevent the newer investors including Thrive Capital and SoftBank from reaping major gains unless the for-profit arm was restructured. As the chart below shows, the company’s planned restructuring—which Microsoft and two state attorneys general still need to approve—would give all those shareholders traditional corporate equity stakes with a theoretically limitless upside.
One question has loomed over OpenAI investors for years: How would they generate a return on their investment? The ChatGPT maker is a nonprofit that capped the potential returns of early backers in its for-profit arm, such as Khosla Ventures and Microsoft, and would prevent the newer investors including Thrive Capital and SoftBank from reaping major gains unless the for-profit arm was restructured.
As the chart below shows, the company’s planned restructuring—which Microsoft and two state attorneys general still need to approve—would give all those shareholders traditional corporate equity stakes with a theoretically limitless upside.
As the biggest outside backer, Microsoft ends up with the biggest stake, roughly 28% in the restructured OpenAI, according to The Information’s analysis of data OpenAI shared with potential investors in an ongoing share sale that values the for-profit arm at $500 billion. That means Microsoft’s stake would be worth about $140 billion on paper. That figure is higher than the share of OpenAI’s future profits Microsoft is currently entitled to under the capped-return structure.
However, as we have reported, Microsoft wants a lot more from OpenAI than just that stake, including guaranteed access to the startup’s intellectual property beyond 2030. When the ink is dried on that deal, some of the proposed stakes in our chart could change.
In the proposed new version of OpenAI, current and former employees would collectively own about 25% of shares, currently worth about $125 billion on paper, according to The Information’s analysis. And investors in the ongoing $41 billion fundraise led by SoftBank, including Founders Fund, Sequoia Capital, Andreessen Horowitz and Dragoneer Investment Group, will together own about 13%, according to the documents. That’s worth roughly $65 billion.
Previously, early investors as well as employees were entitled to a slice of the company’s future profits, as a second chart shows. Without the restructuring, much of the stakes held by the likes of Thrive and SoftBank, which together have poured tens of billions of dollars into OpenAI in the past couple of years, would effectively be much lower than they likely were anticipating. But these investors can also get their money back if the restructuring doesn’t go through.
Some investors including Thrive and SoftBank separately purchased some shares from employees, giving them some rights to future profits under the current structure. (OpenAI doesn’t expect to turn a profit until 2030.)
The nonprofit whose board governs OpenAI appears set to get a stake of about 27% in the restructured company, worth about $135 billion on paper, according to the analysis. Under the current structure, the nonprofit is in line to receive all profits generated by the for-profit arm after nearly $275 billion in profits are distributed to other shareholders.
The earliest investors in the for-profit arm—Khosla, the University of Michigan, Reid Hoffman’s foundation, Gmail creator Paul Buchheit and Y Combinator—will end up with a combined equity stake that’s in the low-single digits, according to a person with knowledge of the breakdown. That could be worth close to 1% of the restructured company, amounting to about $5 billion. (These investors put a combined $194 million in capital into the unit in 2019, according to disclosures made to investors.)
Some of the newest OpenAI shareholders also will own a significant slice. Shareholders of Io, the secretive hardware startup founded by ex-Apple designer Jony Ive, which OpenAI bought earlier this year for $5 billion in stock, will own about 1.6% of the proposed restructured version of OpenAI, according to documents seen by The Information.
At a $500 billion valuation, that means investors including Thrive, Emerson Collective and SV Angel own a combined $7.75 billion of OpenAI—not a bad paper return for investors in a startup launched just a year ago!
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