OpenAI announced Thursday that it reached a non-binding agreement with Microsoft, its largest investor, on a revised partnership that would allow the startup to convert its for-profit arm into a public benefit corporation (PBC).
The transition, should it be cleared by state regulators, could allow OpenAI to raise additional capital from investors and, eventually, become a public company.
In a blog post, OpenAI’s Board Chairman Bret Taylor said that OpenAI’s nonprofit would continue to exist and retain control over the startup’s operations. Under the non-binding agreement, OpenAI’s nonprofit would obtain a stake in the company’s PBC worth upwards of $100 billion. Further terms of the deal were not disclosed.
“Microsoft and OpenAI have signed a non-binding memorandum of understanding (MOU) for the next phase of our partnership,” the companies said in a joint statement. MOUs are not legally binding, but aim to document each party’s expectations and intent.
“We are actively working to finalize contractual terms in a definitive agreement,” the joint statement added.
The development seems to mark an end to months of negotiations between OpenAI and Microsoft over the ChatGPT-maker’s transition plans.
Under their current deal, Microsoft is supposed to get preferred access to the startup’s technology and be OpenAI’s primary provider of cloud services. However, ChatGPT is a much larger business than when Microsoft first invested in the startup back in 2019, and OpenAI has reportedly sought to loosen the cloud provider’s control as part of these negotiations.
Taylor says that OpenAI and Microsoft “continue to work with the California and Delaware Attorneys General” on the transition plan, implying that the deal still needs regulatory approval before it can take effect.
Representatives for California and Delaware attorneys general did not immediately respond to TechCrunch’s request for comment.
Tensions between OpenAI and Microsoft over these negotiations reportedly reached a boiling point in recent months. The Wall Street Journal reports that Microsoft wanted control of technology owned by Windsurf, the AI coding startup that OpenAI had planned to acquire earlier this year, while OpenAI fought to keep the startup’s IP independent. However, the deal fell through, and Windsurf’s founders were hired by Google, and the rest of its staff was acquired by Cognition.
In Elon Musk’s lawsuit against OpenAI, the startup’s for-profit transition is also a major flash point. Lawyers representing Musk in the lawsuit — which at its core accuses Sam Altman, Greg Brockman, and the company of abandoning its nonprofit mission — have tried to surface information related to Microsoft and OpenAI’s negotiations over the transition.
Musk also submitted an unsolicited $97 billion takeover bid for OpenAI earlier this year, which the startup’s board promptly rejected. However, legal experts noted at the time that Musk may have raised the price of OpenAI’s nonprofit stake.
Notably, the nonprofit’s stake in OpenAI PBC, under this agreement, is larger than what Musk offered.
This is a developing story… Check back for updates.
