Unpacking OpenAI's Evolution From Non-Profit to For-Profit

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3:16Open AI. O-M-G-W-G-F. I cannot wait for the lifetime original soap opera that's going to come out of all of the shenanigans that are going down inside this company. This is quite simply the most important company in the world right now, and it could be an interesting investment opportunity down the line, so it's an important one to keep tabs on. Let's get into it. OpenAI, the creator of ChatGBT, is not a company that we can invest in yet. It is private. But originally, it wasn't supposed to be attractive for investors at all. The company was created as a non-profit. It was co-founded by now CEO Sam Altman, along with a few others, notably Elon Musk.

3:56One of the reasons the company was originally intended to be not-for-profit is because of the raw power of AI. AI is obviously a powerful tool, and the consequences of unequal distribution of that tool could be pretty bad. For example, it could widen the wealth gap. If the leader in AI made access to AI super expensive, it could give an unfair advantage to wealthier people. And that advantage could be used to get better job opportunities or investing opportunities, things that could be used to further build wealth and perpetuate the divide. This could also be problematic on a larger scale and worsen the wealth gap between countries.

4:34There are even more nefarious consequences of unequal access to AI, like countries rewriting the truth or history, or even using it to develop plans to harm adversaries. For that reason, OpenAI wanted everyone to have the capability to use AI responsibly and thought that acting as a non-profit would prevent the organization itself from making decisions that prioritized revenue. The computing power required to develop and use AI is massive and it's expensive. So the company set out to raise$1 billion. Because this was non-profit, it, the funding wasn't an investment, but rather a donation. And a few heavy hitters did donate money, like Reid Hoffman, the co-founder of LinkedIn, Peter Thiel, the co-founder of PayPal, Amazon Web Services, Elon Musk, and more.

5:24Elon said he put in$100 million, but now it's being reported that he put in$45 million. Still a lot of millions of dollars, but off by a whole decimal place. This becomes important because now OpenAI is transitioning into being primarily a four profit company. And this is a move that has confused and disappointed some, especially Elon. One way to view this change is that the OpenAI leadership has gotten greedy, and this was just a money grab. Sam Altman is apparently taking a 7 % equity stake, which is around$11 billion at OpenAI's latest valuation of$157 billion. The fact that there is so much turnover at OpenAI sends a sketchy message.

6:08Only three of the 11 co-founders are still at the company. And that three is counting Greg Brockman, one of the co-founders who is currently on an extended leave of absence. There's also been a lot of high-profile departures like OpenAI's CTO. I mean, if you thought that this was about to be the most important company in the world, why would you leave? The only reason I can think of is that something really problematic is going on, which I actually saw Elon Musk say at stage at a conference that I was at two years ago, in the aftermath of the whole Sam Altman getting fired and rehired thing. Elon's response to that was that they know something bad, which is not what you want to hear from one of the co-founders.

6:51Elon has said a lot of things since he left the company. He called them evil, criminal, and he actually filed a lawsuit against the company. The thing is, though, OpenAI did have a practical reason for converting from a non-profit to a for-profit company. OpenAI needed more money to grow the business. This is not breaking news. The company was formed in 2015, and four years later, they had only raised$130 million. And yes, that is a lot of money. But again, their goal was to raise a billion dollars, so nowhere even close. As it turns out, it's hard to get billionaires to donate eight figures on the regular.

7:27So the company decided that they needed a for-profit arm that could raise money and support research and development work. Even though the for-profit arm was structured to be overseen by the non-profit board, the inclusion of the for-profit entity was what sent Elon packing. At least, that's how Elon tells it. As it turns out, Elon and Sam had been exchanging emails about the benefits of raising money as a for-profit entity since 2018. OpenAI actually published these emails, and when they did, Elon dropped the lawsuit. The international sign of losing your leg to stand on. Most recently, OpenAI went on to 6x their original goal and raised$6.6 billion.

8:08But that raise necessitated the organization to put the for-profit part of the company front and center. So now there's a divide amongst the Wall Street gossips. Are you Team OpenAI or Team Elon? I personally am Team OpenAI. Yes, Elon did donate$45 million when OpenAI was a non-profit. And if you, say, donated food to a food drive and then they sold food, you would be mad too. I get it. I get why Elon is sour. But it's not like OpenAI denied Elon the opportunity to share in the profit. He was offered equity and he said no. So the ethics of OpenAI being for-profit is not what this is entirely about.

8:49This is about control. When Elon was part of OpenAI, he advocated that he own over 50 % of the company and therefore would get ultimate decision-making control over the company. When OpenAI shut that down, he left to start a competitor, XAI, which is, by the way, for-profit. What's clear now is that it would have been much cleaner from the start if OpenAI was just a for-profit company from the beginning. But since that didn't happen, all of these moves seem shady when one of the richest dudes on the planet is framing it as such. There are definitely systematic checks and balances inherent in nonprofits that keep the organization from prioritizing profit over mission.

9:33But OpenAI, in theory, could still stand for ethical use of AI regardless of the structure. They could even be an evil nonprofit or a benevolent for-profit. The structure might not be what's important. What is important is the race to dominate AI, and the race between Sam and Elon is on. But so long as one of them wins, I honestly don't care which bro it is. It is clear that whoever controls AI and then AGI will control the future. I know it sounds dramatic, but it's true. So long as it's one of these US-based companies that doesn't have a nuclear agenda, I'm cool. For today's tip, you can take straight to the bank.

10:15This whole converting non-profit to for-profit thing is really rare. So if you donate to a non-profit, this probably isn't going to be something you have to worry about. And you can get a nice write-off. But there are some limits, of course. Typically, you can't write off more than 60 % of your adjusted income if it's a cash donation. And you can't just donate to any company and get a write-off. It has to have certifications. It has to have certifications that are accepted by the federal government. and it means that your taxes will get a little more complicated because you can't take the standard deduction.

10:46You have to itemize everything. If you're making a big donation, it's worth it to do the extra paperwork to get the tax love. But if you're not making a big enough donation to compensate for the extra time or money that it takes to file a more complicated return, it might not be worth it to do the write-off.

11:06Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.