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OpenAI’s promise to stay in California helped clear the path for its IPO

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Re: OpenAI’s promise to stay in California helped clear the path for its IPO

#141

Post by groby_b »

johnrob wrote: post #137
Hansenq wrote: post #82

Earlier quoted context omitted.

In any negotiation, you need to understand what leverage either side has. In this case, CA could block the conversion, and OpenAI could leave California. Both are possible but extremely unlikely outcomes! So the whole point is to take these unlikely outcomes to the table, negotiate in good faith, and come out with an agreement. So California needs to believe that OpenAI will stay in California just as much as OpenAI…

If I am understanding things correctly, OpenAI could leave in the future - but CA can’t retroactively block the conversion in that case.

Yup, but the IPO will still have happened in CA, and there's going to be a tax windfall from that.

It's about a moment in time, not an "in perpetuity" agreement.

Re: OpenAI’s promise to stay in California helped clear the path for its IPO

#142

Post by mandevil »

JumpCrisscross wrote: post #93
mandevil wrote: post #42

Earlier quoted context omitted.

Because of the unusual history of OpenAI, the Government had far more of a say than normal for a company. Remember, OpenAI was originally created as a California non-profit (a charity doing work to create a better AI future). As a charity, it doesn't have to pay the same taxes as it would as a for-profit company, but in exchange it has more rules it needs to follow. And then it released ChatGPT, it exploded in value,…

> a California non-profit (a charity doing work to create a better AI future) Note: non-profit != charity. (All charities are non-profits. Not all non-profits are charities. PACs and non-profit hospitals, for example, are not charities, though the latter can have charitable arms.)

While that is true in the general case, OpenAI was founded as a 501(c)3 to whom all donations were tax-deductible, which is why I used non-profit and charity interchangeably in describing it in particular. There was a for-profit subsidiary spun up in 2019, four years after the original non-profit was created. But it was still owned and operated by the larger non-profit charity organization.

See, for example, Charity Navigator's page on OpenAI: https://www.charitynavigator.org/ein/810861541

Re: OpenAI’s promise to stay in California helped clear the path for its IPO

#143

Post by JumpCrisscross »

BobaFloutist wrote: post #112
JumpCrisscross wrote: post #90

Earlier quoted context omitted.

> Can someone explain to me why California would believe Sam Altman plans to stay in California? The simple answer is unless developing LLMs becomes commoditised, the best place in the world to do it is in San Francisco. You don't take your manufacturing business out of Shenzhen without very good reason.

That still doesn't explain the value of Sam Altman's pinky promise.

> doesn't explain the value of Sam Altman's pinky promise

The MOU [1] requires OpenAI "provide at least 21 days’ prior written notice to the Attorney General before consenting to: (a) a change of control of the PBC; (b) any change to the PBC mission as set out in the PBC Delaware charter; (c) any amendment to the PBC Delaware charter that would remove the NFP’s sole right, as holder of the Class N shares, to appoint PBC directors or otherwise reduces in any material respect the rights of the Class N shares; or (d) the relocation of the headquarters of the NFP or PBC outside of California" [1].

The meat appears to be in the agreements by OpenAI to not change its ownership and control structure. California's real leverage would be in re-opening this dispute, though ¶ 22 seems to water down that power somewhat. (Maybe go after the donors?)

[1] https://oag.ca.gov/system/files/attachments/press-docs/Final... ¶ 19

Re: OpenAI’s promise to stay in California helped clear the path for its IPO

#144

Post by [deleted] »

bazmattaz wrote: post #140
vessenes wrote: post #122

Earlier quoted context omitted.

Jacques, I've been reading and enjoying your posts here for at least 15 years. (Thank you for your service.) But I think you're totally incorrect on this; oAI is going to be one of the enduring tech consumer brands built in this half of the 21st century.

Why do you say so? They’re burning cash and don’t currently have a viable path to profitability. Sure they have millions of MAU but not many paying ones.

[deleted]

Re: OpenAI’s promise to stay in California helped clear the path for its IPO

#146

Post by cma »

groby_b wrote: post #141
johnrob wrote: post #137

Earlier quoted context omitted.

If I am understanding things correctly, OpenAI could leave in the future - but CA can’t retroactively block the conversion in that case.

Yup, but the IPO will still have happened in CA, and there's going to be a tax windfall from that. It's about a moment in time, not an "in perpetuity" agreement.

Not if the big holders aren't residents, they can move away just before like Rogan with his Spotify deal, or Jonathan Blow just before a game release after developing in California and going to public college there, etc.

Since it's a non-profit still holding it any gains to the non-profit entity upon the conversion don't go to California, and principal stakeholders can move away. Other funds raised from the IPO can be invested in other states untaxed (long term datacenter leases instead of booking the capital of building one) until they move the company away I think.

There will probably be a lot of smaller stakeholders that stay with a lot of money for the state, and California at least doesn't do the $15 million QSBS so they may get a lot from that tail of employees. A large portion of this tail of lower compensated employees may get laid off due to AI replacement before IPO and lose a lot of unvested years, if we are to believe OpenAI's own claims about timelines for job replacement in that field at lower levels.

Re: OpenAI’s promise to stay in California helped clear the path for its IPO

#147

Post by JumpCrisscross »

danielmarkbruce wrote: post #124
wbl wrote: post #73

Earlier quoted context omitted.

Not when the AG sues the board and Sam for all the violations that happened around his ouster. The board isn't independent.

They absolutely can leave the state. Board independence is largely a silly idea, people aren't even on the same page as to what the board is supposed to be independent of, and in this case it's not even clear which board you mean - the current one? The previous one? In what way are they less independent than any other board?

> people aren't even on the same page as to what the board is supposed to be independent of

In the U.S. they absolutely are. The SEC defines independent directors [1]. If the majority of a (Delaware corporation's) Board isn't independent, it opens up the company and even individual Board members to heightened scrutiny by the courts [2].

[1] https://www.skadden.com/-/media/files/publications/2022/02/t...

[2] https://www.faegredrinker.com/en/insights/publications/2022/...

Re: OpenAI’s promise to stay in California helped clear the path for its IPO

#148

Post by bwfan123 »

jacquesm wrote: post #38

Prediction for the future: OpenAI IPO's lots of money changes hands, it chugs along for a while, hits a hard spot and then is taken private for pennies on the dollar by Microsoft.

my prediction is that the ai-bubble pops no later than when openai files for its ipo. openai has an incentive to keep its finances outside of the prying eyes of the public shareholders. This way their mystique is kept in tact, and nobody can question their capex and datacenter investment claims. But, it is becoming difficult since msft now reports on their openai holdings.

Re: OpenAI’s promise to stay in California helped clear the path for its IPO

#149

Post by wubrr »

vessenes wrote: post #108
wubrr wrote: post #106

Earlier quoted context omitted.

The location you're physically sitting in doesn't really matter. Saying 'san francisco cause san francisco' is also kinda boring and meaningless.

This is the opposite of true. It's actively wrong. Location is almost everything; people move to financial and tech centers for a reason -- it matters where you are and who you know.

nah

also, where you are and who you know are very different things

Re: OpenAI’s promise to stay in California helped clear the path for its IPO

#150

Post by JumpCrisscross »

lukebechtel wrote: post #117
khazhoux wrote: post #107

I don’t understand the animus towards OAI going public. ChatGPT undoubtedly changed the world. The non->for profit status of the company is not impacting anyone. It’s not like their success was made possible by being a non-profit. Suddenly everyone here is very very concerned with the classification of this corporate entity, and I detect people feel personally slighted. Why is that?

Because the development of this technology was originally done under a certain set of promises ostensibly intended to prevent pure capitalist profitmaxxing. The workers and supporters who were taken by this idealistic vision, believe it was a bait-and-switch, and that the original promises were never intended to be kept.

> workers and supporters who were taken by this idealistic vision

The only people who can claim harm are donors and workers who actually left, e.g. Murati. "Supporters" aren't stakeholders in any material sense.

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