What happens to OpenAI investors? VCs consider legal action against the board that fired Altman

Investors in OpenAI, the company behind ChatGPT, are considering legal action against the company's board after the dismissal of CEO Sam Altman, which has led to a potential employee walkout. The investors, who fear losing their substantial investments in the AI startup, are currently consulting with legal advisors, according to a report by Reuters. 

Microsoft owns 49% of OpenAI, with the remaining shares split between other investors, employees, and OpenAI's nonprofit parent. The board's decision to fire Altman, reportedly due to communication issues, has led to threats of resignation from a majority of OpenAI's 700+ employees. Microsoft has confirmed that both Altman and Greg Brockman, the former president of OpenAI will be joining the company. However, recent comments from CEO Satya Nadella hints at a possibility where Altman may ultimately re-join OpenAI in some capacity. 

OpenAI's unique structure, which includes a nonprofit parent company, gives employees more influence over the board than the venture capitalists who funded the company. This structure was designed to ensure that the nonprofit could maintain its mission and governance. However, this structure also potentially shields the nonprofit's directors from investors.

OpenAI Business Model

OpenAI is an AI research and deployment company which was founded in late 2015. The company's mission was to build safe and beneficial artificial general intelligence. Initially, the organisation was structured as a non-profit, believing that this model would best direct the development of safe and broadly beneficial AGI, without the burden of profit incentives.

However, it was later made clear that donations alone would not scale with the cost of computational power and the talent required to push core research forward. In response to this challenge, OpenAI transitioned from a non-profit to a “capped” for-profit model in 2019. This capped-profit model allows OpenAI Global LLC to legally attract investment from venture funds and grant employees stakes in the company. 

The report suggests that even if investors were to sue, they would likely have a weak case due to this form of governance in the company. As an example, Apple famously fired its founder Steve Jobs in the 1980s, only to rehire him a decade later.

Also read: OpenAI Coup: Over 500 of 700 employees threaten to quit and join Sam Altman at Microsoft; read full letter

Also read: ‘All money in the world won't matter if AI goes wrong’: Elon Musk wants OpenAI to disclose reason for firing Sam Altman