{"id":551,"date":"2025-02-14T12:30:00","date_gmt":"2025-02-14T13:30:00","guid":{"rendered":"http:\/\/asian-idol.com\/?p=551"},"modified":"2025-02-20T14:55:24","modified_gmt":"2025-02-20T14:55:24","slug":"why-elon-musk-offered-to-buy-the-openai-nonprofit","status":"publish","type":"post","link":"http:\/\/asian-idol.com\/index.php\/2025\/02\/14\/why-elon-musk-offered-to-buy-the-openai-nonprofit\/","title":{"rendered":"Why Elon Musk offered to buy the OpenAI nonprofit"},"content":{"rendered":"
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\"Musk

Elon Musk in the Oval Office of the White House on February 11, 2025. | Aaron Schwartz\/CNP\/Bloomberg via Getty Images<\/figcaption><\/figure>\n

It\u2019s been a busy week for Elon Musk. He says he\u2019s saving taxpayers billions of dollars<\/a> (though outlays from the Treasury Department are public and make it pretty clear he hasn\u2019t<\/a>); he bragged<\/a> that he fed USAID \u201cinto the woodchipper,\u201d an aide on his Department of Government Efficiency was revealed to have said this summer to \u201cnormalize Indian hate<\/a>,\u201d resigned, and was then rehired.<\/p>\n

So you\u2019d be forgiven for having missed, amid all the chaos, Musk\u2019s $97 billion offer<\/a> to purchase \u201call assets of OpenAI Inc.,\u201d especially since OpenAI CEO Sam Altman immediately and emphatically rejected it.<\/p>\n

But as we all learned from the Twitter saga<\/a>, it pays to take Musk\u2019s takeover bids seriously \u2014 and while this one almost certainly won\u2019t happen, it may still have big implications for perhaps the most important company in artificial intelligence. <\/p>\n

OpenAI\u2019s nonprofit to for-profit transition<\/h2>\n

To make sense of Musk\u2019s out-of-nowhere bid for OpenAI, you need some background on OpenAI\u2019s controversial conversion from a nonprofit to a for-profit company. <\/p>\n

OpenAI was initially founded as a nonprofit, with the mission<\/a> to \u201censure that artificial general intelligence benefits all of humanity.\u201d But, the company came to argue, it became increasingly clear that to make powerful AI \u2014 and OpenAI has set its sights high, wanting to develop \u201csuperintelligence\u201d\u2019 that can surpass humans in every way \u2014 you needed to raise mindboggling sums from investors. And these investors absolutely wanted a healthy return on their investment. <\/p>\n

So OpenAI transitioned first to a hybrid model, a \u201ccapped profit\u201d system where investors could earn up to 100x their initial investment back, but any returns past that would be the nonprofit\u2019s for the benefit of humanity. The nonprofit board, under this model, still retained ultimate control over the company.<\/p>\n

But that ultimately put the nonprofit board at odds with Altman: In a messy conflict<\/a> in November 2023, the board fired Altman for lying to them, which led to employees threatening to resign en masse, and Altman returning, with much of the board resigning. The conflict left investors nervous, and in the next round of investment they reportedly demanded an end to OpenAI\u2019s unusual status<\/a>.<\/p>\n

But it is not straightforward to transition a nonprofit to a for-profit company. Effectively, according to nonprofit law experts I spoke with while reporting on this in the fall<\/a>, a new for-profit company \u2014 the public benefit corporation OpenAI has said it intends to become \u2014 will have to purchase from the nonprofit all of the rights and assets that the nonprofit currently owns. Such a deal would come with control of the company, as well as all returns over the 100x cap that was negotiated with earlier investors. <\/p>\n

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This story was first featured in the Future Perfect newsletter<\/a>.<\/h2>\n

Sign up here<\/a> to explore the big, complicated problems the world faces and the most efficient ways to solve them. Sent twice a week.<\/p>\n<\/div>\n

The problem is that these assets are extremely difficult to value. If OpenAI really builds superintelligence, the returns over the 100x cap may be extraordinarily high \u2014 while if they become just another low-margin product company, those returns may well be zero. And, of course, how you value \u201ccontrol over OpenAI\u201d depends in large part on just how big the returns prove to be. <\/p>\n

This question of valuation matters because the nonprofit\u2019s board has a fiduciary duty to do what is best for the nonprofit mission in negotiations with the for-profit entity, which one would assume would mean driving as high a price as possible.<\/p>\n

But for months, questions have been swirling about whether the board is really in a position to do that. The board members who clashed with Altman were forced out, and now Altman himself is on the board. That means he\u2019s in a position of selling rights to the company he\u2019s CEO of \u2014 a conflict of interest no one has been quite willing to call him out on. <\/p>\n

The current rumor is that the new for-profit entity would compensate<\/a> the nonprofit with about $40 billion for its assets.<\/p>\n

Musk actually does something good<\/h2>\n

From the beginning, Elon Musk has been skeptical of the OpenAI transition<\/a> to a for-profit company. Musk, who co-founded OpenAI but left after a leadership dispute, has painted the for-profit transition as a naked power grab, arguing in a lawsuit that Altman and his associates<\/a> \u201csystematically drained the non-profit of its valuable technology and personnel\u201d in a scheme to get rich off a company that had been founded as a charity. (OpenAI has moved to dismiss Musk\u2019s lawsuit<\/a>, arguing that it is an \u201cincreasingly blusterous campaign to harass OpenAI for his own competitive advantage.\u201d Musk owns a competitor, X.ai.)<\/p>\n

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And while I am as exasperated as anyone with Musk\u2019s bluster and find it hard at this point to ascribe him good faith, I think that his $97 billion offer is a public service. <\/p>\n<\/blockquote>\n<\/figure>\n

Musk\u2019s new takeover offer will substantially complicate any plans for the for-profit entity to purchase OpenAI\u2019s assets from the nonprofit entity for $40 billion, or any price in that range. As I discussed above, it\u2019s inherently speculative to come to an appropriate valuation of those assets, given how uncertain the future of AI is. <\/p>\n

But if I were a court of law considering whether the nonprofit board fulfilled their fiduciary duty, I\u2019d find it hard to believe that the appropriate valuation of those assets was $40 billion when someone else offered to pay nearly $100 billion for them. By making the offer, Musk makes it obvious that OpenAI was dramatically undervaluing these assets \u2014 and draws attention to the fact that Altman, in his capacity as a board member of the nonprofit, is helping to negotiate the sale of all the nonprofit\u2019s assets to Altman, in his capacity as the CEO of the for-profit, all at what now appears to be a fire-sale price.\u00a0<\/p>\n

OpenAI did not reply to a request for comment on Musk\u2019s bid for the nonprofit\u2019s assets. Musk\u2019s lawyers said<\/a> in a filing on Wednesday that he would abandon his offer if OpenAI agreed to stop its for-profit conversion. \u201cOtherwise,\u201d they said in the filing, \u201cthe charity must be compensated by what an arms-length buyer will pay for its assets.\u201d (Disclosure: Vox Media is one of several publishers that has signed partnership agreements with OpenAI. Our reporting remains editorially independent.)<\/p>\n

The state attorney general in either Delaware (where OpenAI is registered) or California (where OpenAI operates) could step in on behalf of the taxpayers if they think that the OpenAI conversion isn\u2019t being handled in accordance with the obligations of the board. And while I am as exasperated as anyone with Musk\u2019s bluster and find it hard at this point to ascribe him good faith, I think that his $97 billion offer is a public service, by making it very clear how much OpenAI is undervaluing its nonprofit. <\/p>\n

If the nonprofit to for-profit conversion is to happen, it should happen at a fair market price. $97 billion is much closer to that than $40 billion. The way OpenAI has approached the valuation of the nonprofit is a real problem, and Musk\u2019s \u201cbid,\u201d however trolly it might appear, could shine a light on it in the way only an ultrabillionaire can.<\/p>\n

A version of this story originally appeared in the Future Perfect<\/a> newsletter. Sign up here!<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Elon Musk in the Oval Office of the White House on February 11, 2025. | Aaron Schwartz\/CNP\/Bloomberg via Getty Images It\u2019s been a busy week for Elon Musk. He says he\u2019s saving taxpayers billions of dollars (though outlays from the Treasury Department are public and make it pretty clear he hasn\u2019t); he bragged that he […]<\/p>\n","protected":false},"author":1,"featured_media":553,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[],"class_list":["post-551","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-innovation"],"_links":{"self":[{"href":"http:\/\/asian-idol.com\/index.php\/wp-json\/wp\/v2\/posts\/551","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/asian-idol.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/asian-idol.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/asian-idol.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/asian-idol.com\/index.php\/wp-json\/wp\/v2\/comments?post=551"}],"version-history":[{"count":2,"href":"http:\/\/asian-idol.com\/index.php\/wp-json\/wp\/v2\/posts\/551\/revisions"}],"predecessor-version":[{"id":554,"href":"http:\/\/asian-idol.com\/index.php\/wp-json\/wp\/v2\/posts\/551\/revisions\/554"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/asian-idol.com\/index.php\/wp-json\/wp\/v2\/media\/553"}],"wp:attachment":[{"href":"http:\/\/asian-idol.com\/index.php\/wp-json\/wp\/v2\/media?parent=551"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/asian-idol.com\/index.php\/wp-json\/wp\/v2\/categories?post=551"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/asian-idol.com\/index.php\/wp-json\/wp\/v2\/tags?post=551"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}