OpenAI’s promise to stay in California helped clear the path for its IPO
wsj.com225 points by badprobe a day ago
225 points by badprobe a day ago
https://archive.ph/NCZhi
Can someone explain to me why California would believe Sam Altman plans to stay in California? This is a weak handshake agreement that could easily be flipped post IPO. The very flip from non-profit to IPO shows he will do what it takes for OpenAI to "succeed", so why would the geographical location be any more permanent than corporate structure. This isnt a diss to Sam either, it just shows he is motivated by whatever is best for the entity at any given time. They might stay in California, but that probably has far more to do with available researchers and employee preferences than some agreement with the Attorney General. 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 needs to believe that CA won't block the conversion (or impose other onerous regulations around AI). So yes, it's possible to speculate about whether or not people are sincere in their motivations, but when you need to make a deal, there needs to be a measure of good faith and trust on both sides in order to make something happen. And in this case, both sides are incentivized to make the deal. OpenAI wants to be a PBC in order to access more capital, and California wants OpenAI to be a PBC so that it can IPO so that all employees (all of whom are likely CA residents), will sell stock, which can then be taxed as CA income. If I am understanding things correctly, OpenAI could leave in the future - but CA can’t retroactively block the conversion in that case. California is home to 1 in 8 Americans, and likely a much higher fraction of AI researchers, users and partner organizations to OpenAI (like Nvidia). The California AG has plenty of leverage beyond blocking/reversing the conversion. What leverage will OpenAI have after "leaving"[1] the California? 1. They're guaranteed to have an engineering office in the SF Bay. Not many of those folk will agree to relocate to Texas/Miami. Yup the Tesla treatment. Can change HQ's all you want but the main engineering work, brains, and talent will be at a HQ in California no matter what. Sam will probably do this for brownie points with the current administration, it will be politicized news for a cycle, but after the dust settles the majority of non-admin people will still be working unchanged out of CA. 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. Unless you're Universal and Marvel, leaving Disney unable to buy out Universal's contract with Marvel, and unable to use classic comic book characters because the parks too close to Universals. Still cracks me up. 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. I'd recommend anyone expecting to profit from OpenAI stock and aiming to avoid California taxes to look into the subject in depth with paid advisors. The California FTB is not stupid or naïve and has a history of successfully getting paid for stock that vested with a California nexus, even if the beneficiary moves out of state. Good luck! > 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. Seems a little easier than that, though, because there are no supply chains involved (other than for the data centers, but those are already not in SF). Why else would the CA government be worried? There's books written about the Bay Area and the factors that make (or made) it uniquely suited for developing new technologies. There's even college courses about it. Some of it's surely provincial fluff, but it's undeniable that California has been an essential incubator for a whole series of world-changing, fortune-making technologies. I don't want to downplay the network effects here, but it's in CA entirely by coincidence. SV is in CA because William Shockley's family is there, which is why he founded Shockley Semiconductor there. It could have been somewhere else. The 2nd largest tech hub is in Seattle. It's there because that's were Bill Gates is from. Is SF the best place to start a startup if you want in office talent in 2025. 100% yes, but that has nothing to do with the Bay Area and everything to do with accidents of history. > that has nothing to do with the Bay Area and everything to do with accidents of history I think you’re wrong. But that’s irrelevant. The fact that it exists now is what gives it staying power. One of the surest bets I’ve seen in seed and Series A investing is when a market has one or two competitors in a cluster and the rest outside. The insiders win. Always. It’s the easiest bulldozing strategy that exists. > I think you’re wrong. But that’s irrelevant. It's on you to prove the parent wrong and you provided nothing to explain why the Bay Area is special beyond history/staying power. > It's on you to prove the parent wrong and you provided nothing to explain why the Bay Area is special beyond history/staying power I’m literally saying it’s irrelevant due to incumbency effects. If someone is doing something AI outside the Bay Area, a decent business is to copy and outraise them. > I think you’re wrong. But that’s irrelevant. The fact that it exists now is what gives it staying power. You said OP was wrong to say "that has nothing to do with the Bay Area and everything to do with accidents of history" but that it's irrelevant anyway because the area has incumbency effects. Those are 2 separate things, something that you claim to be wrong but irrelevant, and something you say is true. I agree with the second point, incumbency is a heavy weight to dislodge. But why would OP be wrong to say there's nothing intrinsic to the place that give it power? I think OP is completely correct, the Bay Area as a place itself isn't special, it's those historical accidental decisions that now make it a hard to dislodge incumbent. But this detail is very important because if "the place" doesn't have some intrinsic power, like some unique natural resource, geography, climate, etc. that just can't be replicated elsewhere, then it can be replicated elsewhere. In fewer words, "the place" having something unique means immovability. Incumbency just means inertia. Inertia isn't what it use to be. Detroit was the place for building cars just a few decades ago. One accidental decision, one bad policy can send an incumbent on a slow roll down. The Bay Area itself has nothing that reasonably can't be replicated elsewhere, unlike for example an oil field which you have or you don't. Municipalities trying to make their own Silicon... Alley, Beach, Hills, Slopes, Forest, Prairie, Bayou, Desert, Roundabout, Docks, Glen, Fen, Cape, Oasis, (and more!) with varying degrees of success, so I don't know that it is unreasonably replicatible. Despite all those efforts, OpenAI and Anthropic both are heavy hitters in the AI industry, and they are both headquartered in San Francisco. Naturally, nothing lasts forever. Not Silicon Valley, not the USA, not the Holy Roman Empire. Some things do last quite a while though. If we look all the way back to Hewett-Packard, though now a shadow of its former self, it was established in 1939. Exactly. No one is arguing the historical & material reasons as to why Bay Area is the birthing place of many technological revolutions. The Bay Area is special because of said history/staying power - which has systemic downstream advantages that cannot be replicated. 60% of total VC funding is in the Bay Area alone. Being surrounded by Stanford, Berkeley, etc gives the region a constant flow of world class engineers. Theres just no other region like it and won't be for a very long time. > No one is arguing the historical & material reasons as to why Bay Area is the birthing place of many technological revolutions. You're kinda missing the bigger picture - the fact that Bay Area was not always a tech hub, and became one at some point for various reason - which can happen in any other place (and has). > which has systemic downstream advantages that cannot be replicated. Seems like a very baseless and meaningless statement. > Being surrounded by Stanford, Berkeley, etc gives the region a constant flow of world class engineers. Except for the fact that the vast majority pf Bay Area tech talent does not come from Stanford or Berkeley, and is being outsourced at ever increasing rates. > Theres just no other region like it and won't be for a very long time. If you say so. Not entirely by coincidence. Yes Shockley was from CA, but as late as the 1980, two places were competing to be the center: Boston's Route 128 ("America's Technology Highway") or Silicon Valley. Silicon Valley won out because the CA constitution explicitly prohibits non-competes (which MA allows), leading to more rapid innovation. Very likely the infamous Traitorous Eight who left Shockley Semiconductor to found Fairchild could not have done that if noncompetes could be enforced. Non-competes are one aspect, absolutely. However that's can't be the whole story because that applies to all of California and it's a decently sized state, with a lot of other areas. Any part of the southern California basin, San Diego, and Sacramento. If we include smaller areas (because silicon valley was once just apple orchards, that list gets longer. It goes back way way further than that. The special mix of government funded technology, ruthless entrepreneurship, and social engineering predates Shockley by almost 100 years. Start by figuring out who Leland Stanford is and how he got rich. Read the book ‘Palo Alto’ if you’re looking for a good starting point. Yeah it’s quite bold to suggest that Shockley would have done the same thing outside the environment of the Bay Area rather than that someone other than Shockley would have done what he did in California if he wasn’t there or that even if he did it outside California that people inside California still industrialize it. It’s a very individualistic view of progress which is uniquely American and unlikely to capture how stuff happens given that multiple discoveries often happen simultaneously by people working on the problem (eg calculus and Newton vs Leibniz). The truth is the Bay Area has structural reasons why SV happened and why the same thing has failed to replicate to any significant degree outside the Bay Area. Yep, I would highly recommend reading the Secret History of Silicon Valley for those that are interested: https://steveblank.com/secret-history/ except developing AI is very much a knowledge exercise with very little dependency on location. You don't move your manufacturing business out of Shenzhen because the entire hard supply chain from mining, refining, manufacturing, test, ship and trade are all there. You can't move a refinery that easily much less the entire supply chain. Sure, but most of the country’s AI talent is concentrated there. Not to mention venture capital. What’s the advantage of moving? Maybe lower taxes and a cheaper rent. That seems like a small price to pay compared to the hundreds of billions they’re putting into data centers. They're concentrated there because they've been asked to concentrate there. That can change on a dime. It's not like data centers are mainly in SF. You've got it backwards. Well paid engineers congregate in California because it's a nice place to live if you can afford it. Therefore if you want to hire the best engineers, and want an in-office work culture, you need to go to California. Well paid engineers congregate in CA because that's where the companies that hire well paid engineers congregate, and they (mostly) want those well paid engineers to come to the office every couple of days. I don't know how you could get the causality so completely backwards on this. Depends on the type of engineer - NYC for fintech is also a top spot, Boston for robotics, etc... Anecdotal evidence: I moved to CA twice as an engineer. Once to get my masters after college. Stayed for 13 years. Left during COVID. Second time to raise kids. Our reasons include weather, intellectual atmosphere, safety (in many regards), schools, and job opportunities. The geo area sandwiched between Berkeley and Stanford is only rivaled by Boston. You think Stanford and Berkeley are in the Bay because they’re told to? And I would also question: what’s the point of living in US if you’re not in California? Once you decide to not live in CA, a bunch of other countries rank better than other US states. Such as Canada, Australia, New Zealand. If I were to not live in CA, even the imperial units would quickly become annoying. I think you're wrong. The concentration is for a host of reasons. Witness the large number of cities and countries that have tried to create a local Silicon Valley competitor unsuccessfully over the last 25 years. The data centers I think prove this point, and disprove yours -- huge spend has gone into data centers, but places like Wenatchee remain stubbornly not Silicon Valley. Intel has not made Portland into SV. Austin, while a tech hub and one of the US supply chain centers for hardware, is multiple orders of magnitude less productive than SV for tech startups. Productive as in numbers of unicorns, total value creation, however you want to spin it. > That can change on a dime. People tried very hard to change it between 2020-2023 and utterly failed. Cries in the number of "next Silicon Valley" in the last 30 years. Silicon Alley, Beach, Hills, Slopes, Forest, Prairie, Bayou, Desert, Roundabout, Docks, Glen, Fen, Cape, Oasis... and that's not the complete list! The Texas Stock Exchange launches next year and I predict we will see a lot of tech try to move to launch there given txse claim to have lower compliance and less esg needs. > Texas Stock Exchange launches next year The TXSE was launched by an energy magnate [1] and "is financed by institutional investors including Charles Schwab, Fortress, BlackRock, and Citadel Securities" [2]. It's a direct response to the NASDAQ and NYSE putting their feet down on carbon emissions. Nothing about its structure requires a company be incorporated in Texas much less based there [3]--those restrictions would go against the reason it was founded. [1] https://en.wikipedia.org/wiki/Kelcy_Warren [2] https://en.wikipedia.org/wiki/Texas_Stock_Exchange [3] https://www.hunton.com/insights/legal/a-comparative-analysis... I learned recently that Nasdaq imposes DEI on companies as a requirement of listing. You know that Nasdaq isn't in Silicon Valley right? Lots of companies are based in the valley, listed in either CA or Delaware and go on to list in NYC now. There's no compelling reason for them to move to Texas. As for the compliance thing it remains to be seen, but generally companies in low-compliance jurisdictions trade at a "fraud discount" to compensate investors for the likelihood of untoward shenanigans that would be prevented by that compliance. Stock exchange aside, being able to build buildings without getting held of years or even decades for an endangered tree frog, and also employees being able to afford housing are kind of important to companies. Texas has its downsides, for sure, but it would be silly to pretend there aren't other reasons for companies to move there that have nothing to do with the new stock exchange. It’s frauds all the way down downvoted -- this is a low quality comment, and worse, it's uninformed. Texas may be lower reg than NASDAQ at launch, and it may compete for business that way, and consumers may or may not like this and may or may not benefit from it. However, post Sarbox US is vastly more regulated than the markets that "built" Silicon Valley, and there are many costs to corporations, founders and employees of that heavier regulation -- including a radically less friendly public capital market for companies worth hundreds of millions of dollars. 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 The location you're physically sitting in doesn't really matter. Saying 'san francisco cause san francisco' is also kinda boring and meaningless. > location you're physically sitting in doesn't really matter Of course it does. The benefits of proximity to business clusters [1] is well researched [2]. There is no evidence remote work has dampened that tendency; if anything, as evidenced by AI, the effect seems to have increased. [1] https://en.wikipedia.org/wiki/Business_cluster#Cluster_effec... [2] https://www.isc.hbs.edu/competitiveness-economic-development... You're linking to pre-covid studies, that mention some types of benefits (for specific reasons like logistics benefits for businesses relying on physical materials/goos, or physical access to people for the purposes of networking), for some kinds of industries, and also mention that these benefits are not seen for some industries. > Sometimes cluster strategies still do not produce enough of a positive impact to be justified in certain industries. Let's take a step back and look at the fundamentals of a tech company who's employees are remote - what are the specific benefits of having a San Francisco office? > linking to pre-covid studies I'm linking to studies summarising a century of work. There is no evidence Covid changed this. Exhibit A for Covid having not changed this is the continuing supremacy of Silicon Valley (tech), Shenzhen (manufacturing) and New York (finance) as industrial clusters that others have tried to replicate (everyone, America and Miami, respectively) and failed. > Let's take a step back and look at the fundamentals of a tech company who's employees are remote - what are the specific benefits of having a San Francisco office? Proximity to investors. Proximity to customers. Proximity to a skilled employee pool. Proxomity to acquirers. (A lot of deals happen at cocktail parties and ski trips.) By the way, I'm not arguing anyone needs an office. Just people physically and and proximate to the cluster. > Exhibit A for Covid having not changed this is the continuing supremacy of Silicon Valley (tech) You mean like when China built chatgpt 4 in a weekend and open-sourced it for giggles? > Shenzhen (manufacturing) ..or you mean how US manufacturing 'clusters' almost completely disappeared/replaced by Chinese ones? > Proximity to investors. Proximity to customers. Proximity to a skilled employee pool. Proxomity to acquirers. Right, cause you have to physically pet every investor on the head to fundraise, your remote employees must be in san fran cause network latency interferes with their windows remote desktop workflow, and, for some reason, you have to be physically close to your customers when you're selling your web-only llm wrapper saas. > You mean like when China built chatgpt 4 in a weekend and open-sourced it for giggles? DeepSeek R1 is an amazing feat. It's not at the same level as other large frontier models from American companies, just close enough to make them sweat. > ..or you mean how US manufacturing 'clusters' almost completely disappeared/replaced by Chinese ones? The value of goods manufactured in the US has never been higher. US manufacturing focuses on goods at the top of the value chain: jetliners, cars, semiconductors, medical scanners, and other advanced electronics. These tend to cluster in a few places - for example, Long Beach is a hub of space and avionics manufacturing, Texas has the "Silicon Prarie," and Boeing in Everett is one of the major employers in the region. Manufacturing has disappeared as a share of GDP, but that's not because we make less stuff. > Right, cause you have to physically pet every investor on the head to fundraise, your remote employees must be in san fran cause network latency interferes with their windows remote desktop workflow, and, for some reason, you have to be physically close to your customers when you're selling your web-only llm wrapper saas. You sound sarcastic, but YES. You do generally have to physically be present to make deals. It is obviously theoretically possible to run a world-leading software company fully remote. Despite that, most of them are in-person at least a few days a week. If you want to take advantage of SV's easy VC money, you absolutely have to be present. Companies are not purely about the numbers. A lot of business is imprecise and heavily dependent on things like just plain LIKING the people you're in bed with, and unfortunately there is no substitute for being in the same room as someone to make a decision like that. > Manufacturing has disappeared as a share of GDP, but that's not because we make less stuff. We assemble. The actual parts are largely made overseas. Because location matters, assemblers in China are able to do better work at a much lower price, see every Chinese EV company, or Chinese drone companies. Heck in China you can buy a competent Chinese EV motorscooter for less than a kids bicycle in America. > It's not at the same level as other large frontier models from American companies Cool story > The value of goods manufactured in the US has never been higher... Manufacturing has disappeared as a share of GDP, but that's not because we make less stuff. You're seriously going to try to argue how US manufacturing (which was the greatest share of global manufacturing by far) didn't decline, to support a point about how China (Shenzhen) is apparently an unreplicable manufacturing hub due to 'cluster effect'? It's funny that you don't see the contradiction. For the record, US manufacturing as a share of global manufacturing has significantly declined over the years. [0][1] "
> The United States' share of global manufacturing activity declined from 28% in 2002, following the end of the 2001 U.S. recession, to 16.5% in 2011 > China displaced the United States as the largest manufacturing country in 2010 > Manufacturing output, measured in each country's local currency adjusted for inflation, has been growing more slowly in the United States than in China, South Korea, Germany, and Mexico
" > You do generally have to physically be present to make deals. If you need to be physically present for a meeting, you make a trip. There is absolutely zero benefit to living in close proximity to investors the rest of the time. > It is obviously theoretically possible to run a world-leading software company fully remote. It is obviously not just theoretically possible, and many companies do so. [0] https://en.wikipedia.org/wiki/Manufacturing_in_the_United_St...
[1] https://www.bcg.com/press/21september2023-north-american-com... 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 > where you are and who you know are very different things Different but related. Getting a purposeful introduction involves a lot more friction than being invited to someone's home for dinner with their colleagues and contacts. You seem to assume dinner parties and in-person social engineering is the key to success. I guess I have a different opinion - the tech, the product, the efficiency is the key to success. This is so funny to imply that you (living in East Jesus, Texas) have a better or similar opportunity to me (living in SF) in making more relationships and connections to AI related companies, engineers, investors, customers, acquirers, scientists, etc. I live a lot further from SF than Texas, yet I've been working fully remote for SF tech companies (among others) for 10+ years. If I need to meet someone in person, I make a trip (~few times a year) It's true that I can't brownnose/service random tech talking heads in person on a daily basis tho, which is what I assume you mean by 'relationships and connections' lmao > Can someone explain to me why California would believe Sam Altman plans to stay in California? This is a weak handshake agreement that could easily be flipped post IPO. It is not a “handshake agreement”, but binding written agreement with terms constraining the governance of the restructure OpenAI entities. https://oag.ca.gov/system/files/attachments/press-docs/Final Executed MOU Between OpenAI and California AG re Notice of Conditions of Non-Objection %2810.27.2025%29 %28Signed by OpenAI%29 %28Signed by CA DOJ%29.pdf If they're still based in CA when they IPO at least those initial taxes will be collectible in state (assuming they're structured in a way where the IPO is a taxable event for the leadership and staff). Pretty sure the taxes collected from OpenAI will be the single biggest IPO tax windfall ever (correct me if I'm wrong, but I can't think of a bigger one). We're finally going to get that bullet train. Oh man know I know I shouldn’t say it but that’s a genius reply! Thanks for the (depressing) laugh. What are the taxes on an IPO? It's capital gains, which aren't taxed until the capital (IPO stock) is liquidated. I'm sure some people will liquidate their stock promptly but I expect that most will hold it, expecting further growth, and that the big investors, including Altman, will hold onto it for because of the same reason, because they need to sell optimism (what would people think if Altman or Microsoft sold a significant chunk of stock?), and because OpenAI needs lots of assets to build datacenters and buy power. stocks sold by the company in an IPO aren’t taxable income. Pre-IPO stocks that people liquidate because there is now a liquid market and they want to realize some gains will generate some, but I don’t know how you’d predict the magnitude of that. Can someone explain to me how staying in CA has anything whatsoever to do with whether or not they IPO? Because it seems like it should have absolutely nothing to do with it. (Linked article is a paywall, so I can't read it.) OpenAI needs to IPO because they want to access the public capital markets to fund their AI investments, more deep-pocketed investors are wary of investing in a LLC, and for liquidity, etc. OpenAI needs to convert to a C-corp in order to IPO. OpenAI needs the CA Attorney General's approval to convert a LLC into a C-Corp because the LLCs is headquartered in CA and incorporated with many CA laws. So the article is making the point that OpenAI likely got the CA Attorney General's approval for the conversion because they promised to stay in CA (whether or not that's actually true). (or support journalism and pay to read the article) > This isnt a diss to Sam either, it just shows he is motivated by whatever is best for the entity at any given time. This is the kind of weird rationalist (?) thing that people say a lot these days to justify bad behaviors: in this case Sam Altman behaves like a pathological liar. In the US, one has to remember that megacorps usually end up winning, as people mostly only care about money and blindly supporting corporations is seen as pro-economy. There are also no limits on political financial contributions, and people have really short attention spans. Politicians taking the superficial short-term win, as they will end up giving in to the megacorp anyway, is not surprising to me. > and blindly supporting corporations is seen as pro-economy These clumsy stereotypes are so pointless. IPO is to leave someone holding the bag, right? The narrative has really changed from AGI, the most consequential technology, blabla. If I had that I would keep it private. If I wanted to cash out, I’d do an IPO. Is there a narrative that doesn’t make it seem like pump and dump? I was watching the OpenAI livestream yesterday. Sam was saying they have a $1.4 tn financial obligation to build 30 GW worth of data centers https://youtu.be/ngDCxlZcecw?t=1179 That's a lot of money to raise given they have no earnings. He also says they are talking about being able to build 1 GW a week at a cost of $20bn/GW I find it all a bit worrying. Weren't we supposed to be careful with energy use to reduce CO2 emissions? Could the billions maybe better deployed to schools hospitals, housing and the like rather than chatbots? Rather than a fictional paperclip maximising AI eating the world we have a chatbot maximising Altman trying to do so? >Weren't we supposed to be careful with energy use to reduce CO2 emissions? The Programming has changed get with the times. AI earnings have outweigh ESG scores. You didn't notice as soon as energy was needed for AI, all the tech companies gave up on green power and reducing emissions? They have 800M weekly active users that have yet to be monetized but enormous capital costs. It makes sense they'd be looking to raise large amounts of money in an IPO. A capital investment is predicated on there being future profits. I don't understand why they can't be profitable already. If 800M AU is not a critical mass for flipping on the revenue switch, I can't imagine what is. So what stops them from monetizing those users today? Why would it be any different in the future if they can't? I say further limit the free tier and more aggressively push those free users to a paid plan. Raise the prices for Business users and API access. An IPO isn't going to raise the trillion they need to keep running off capital. Once OpenAI reaches the eventual pricing needed to break even, I suspect we'll see that it no longer makes sense for many of their customers to replace humans with AI after all. As it stands now, their investors are essentially paying OpenAI to put employees of other businesses out of jobs by masking the true costs. The sooner they can reach the sustainable pricing phase the better. OpenAI burns <5B$/year in inference. They're raising that money to hyperscale larger models. 800m users, 25m paying subscribers LLMs have been commodified... Why would I pay for chatgpt when I can rotate free accounts on all providers and essentially never run out of tokens? How many of these users will be able to be monitized is an unanswered question as of yet however. API usage on the other hand has a clear path to monetization and as of right now Anthropic is looking a lot better than OpenAI there. Everyone. People are becoming dependent on chatgpt. They literally cannot function professionally or even socially without it. They will pay their last 20-30 dollars if needed. It's literally like a drug especially when it's asking you if you want to followup/continue. Everyone also uses Google, YouTube or Instagram. No one would ever pay for any of it though and it is financed through ads. So far it is unclear, if this is also a viable option for chatgpt. YouTube Premium has over 125 million subscribers. Out of about 2.7 billion users. So about 5% of all users are subscribed to YouTube. If the same were true then Open AI at 1 billion weekly users they should have about 50 million subscribers. Right now that numbers sits at 20 million though and growth is slowing down. [1] So people are more willing to pay for YouTube than ChatGPT and that is ignoring that YouTube is still largely relying on ad revenue and can only allow itself to have more and more ads as there are no alternatives. Open AI has plenty of competitors that would love to offer users free access if ChatGPT were to start showing you ads. [1] https://fortune.com/2025/10/14/openai-subscriptions-flatline... > Everyone also uses Google, YouTube or Instagram. No one would ever pay for any of it though and it is financed through ads. A lot of people already pay for YouTube since the introduction of Premium. Google/Facebook don't push for paid versions of these products because the data from billions of "free" users is more valuable to them than payments from millions of paid users. If Google search were paywalled (pre-AI) the most likely outcome would be a separation of consumers into "premium" customers paying for Google, some people paying for cheaper but not quite as good alternatives, and everyone else getting by with the free alternatives. There would also likely be some kind of enterprise tier for indexing your corporate resources or some such. There's a reason Adobe is still extracting billions from its ~~victims~~ users despite many great free (or reasonably priced) alternatives existing. At least one of us is inside a bubble. Nobody I interact with regularly uses chatgpt for anything more than novelty. Even people who used it as glorified google for looking up things reduced their use. There are definitely big?bubbles where everyone has outsourced their thinking to AI. I’d like to think it’s mostly at the lower end of “knowledge work” - think Deloitte, but it seems that even people / orgs that you would expect more critical thinking of are using it uncritically. Of course this all occurs in a very small segment of society, I think the majority of people don’t really use it, and certainly haven’t moved any of their day-to-day thinking over to it. monetization is straightforward - the only question is who gets the money and which business models succeed. Yeah, it's a pump and dump. You wouldn't sell AGI for any amount of money. You'd literally be a god king. You could build an army of sentient robots and just seize entire countries. IPO day would be a great time for someone else to release a revolution of an open model to the public... In the before times, companies went public to raise capital in order to grow their business. It hasn't been like that for quite some time. The corpse is sold off to mutual funds and pension plans Does that seem like what’s happening here? If they’re on the path to AGI, there’s probably a predictable cost structure to get us to the point where these models are self-reinforcing and we get fast takeoff. This is the dumbest they’ll ever be remember. How can a non-profit IPO? I know that technically OpenAI is a for-profit company that is owned by a non-profit, but I still don't get it. It is being restructured to no longer be a nonprofit, but a for-benefit corporation instead. That is why California's approval was required (and IMO is just as corrupt as it sounds). "OpenAI and Microsoft have made their next move in their attempt to expropriate the OpenAI nonprofit and pull off one of the largest thefts in human history." https://thezvi.substack.com/p/ai-134-if-anyone-reads-it?open... But aren't non profits a federal thing with rules dictated by the IRS? Why is California involved? Corporate law is overwhelmingly state law. Every federally tax exempt entity is a state (or foreign) corporation or other kind of entity, and states (or foreign governments) impose rules on corporations registered in their borders. Plus, many states levy their own corporate taxes. A nonprofit corporation needs to secure tax-exempt status from states as well as the federal government. This is a necessary implication of America's dual-sovereignty system. > aren't non profits a federal thing with rules dictated by the IRS? Why is California involved? Most states incorporate federal rules for their own exemptions for charities and non-profits. California treating OpenAI to date as a non-profit has revenue implications for Sacramento. So they avoid billions of tax on nonprofit status, then magically get to keep it all when they are for-benefit? How about no, fuck you, dissolve? I mean, OpenAI has never been profitable. If anything, they are insanely unprofitable. The more interesting question is will they be able to deduct those past losses (while they were "nonprofit") from their future income in the same way they could if they had been a normal corporation all along. you can IPO the for-profit subsidiary. done before. the main tricky part is resolving the tax issues since as a non profit you are exempt, but obviously a for profit is not exempt from paying taxes Mozilla has this same structure (non-profit parent, for-profit subsidiary) because the subsidiary has to pay taxes on the money Google pays to be Firefox's default search engine. As do many gift shops attached to non-profit museums and art galleries. The difference is that Mozilla’s for-profit arm is owned by the non-profit. The for-profit part of OpenAI is there to make a lot of individuals and for-profit corporations rich. OpenAI’s profit-generating subsidiary isn’t just there to further the non-profit mission like a museum gift shop or Mozilla’s for-profit subsidiary. That’s why this was scrutinized more and the California AG got involved but it’s not that rare either. Novo Nordisk the maker of Ozempic for example IPOd, diluting the Novo Nordisk Foundation’s share (though they still have controlling voting rights due to share classes IIRC) to raise money. SRI International spinoffs often get sold (Siri) or raise money and IPO (Nuance) diluting the nonprofit’s share significantly in the process. A nonprofit that owns a for profit subsidiary is no different than a regular shareholder and can decide that diluting to reward employees or get investors is worth it to grow the value of the whole company. There's so, so much misinformation about this out there. For example - every US nonprofit starts as a plain old vanilla C corporation, and then applies for 501(c)3 status which the IRS may or may not grant. It's a privilege to be a nonprofit. The punishment that may be levied on a nonprofit is ... loss of that status and a return to a commercial corporation. That loss of status might have knock-on impacts on things like, say, tax deductions offered to donors, and I guess possibly on corporate income tax to the extent a company's accounting shows a profit. But it's not a thing you're "locked into" somehow and trying to escape. Quite the opposite; it's a thing the Federal government chooses to support financially as a matter of public policy. oAI had a lot of work to do to get recapitalized like it did, but it was not the non-profit status that was the (major) problem. It was (at the least) the investment covenants made with the Microsofts of the world that bound them; the MS deal was the big thing here. A corporation is locked into its nonprofit status due to its articles of incorporation and state law regardless of its federal tax-exempt status. I think it’s generally more accurate to say that charitable assets are likely either locked to charitable purposes or need a fair valuation in case of disposal or wind down. I don’t know all the details here, but I would guess it’s enough of a mess between the parent and the for profit sub that some negotiation was inevitable. If this happened any non-western country headlines would say "corruption". If the deal is in California's and OpenAI's interests roughly than there is no corruption. Sure they're using their big weapons but there's not a major principal-agent divergence on either side from what I can see. Altman wants to build the business (and make money) and California wants the tax revenue and maximize chances of the core business remaining largely in the state. ...No? It's very common to incentivize companies to locate at some areas. Special Economic Zones are not some western-only idea. Actually you got it upside down. Only in western countries people will think it's corruption. Copy of the Memorandum of Understanding between California and OpenAI: https://oag.ca.gov/system/files/attachments/press-docs/Final... Interesting - this reminds me a lot of the story with Cisco: for decades they remained a California C-Corp while many other companies reincorporated in Delaware. I once heard a lawyer say “all my clients are Delaware C-Corps except Cisco, and their reason is political.” Eventually Cisco did indeed buckle in 2021 and reincorporate in Delaware . . . Question: what does this mean for trust in any non profit structure if it’s this easy to convert? Why would investors put money in something they will get no returns on, but that the operators can at anytime turn into profits for themselves? The new nonprofit is getting $130B of OpenAI stock, which is 1000x more than the donations OpenAI received as a nonprofit. IMO the nonprofit donors have a valid complaint that OpenAI is changing the deal anyway, but the numbers seem worth noting. One angle I haven’t seen much here: governance isn’t just “where is HQ?”—it’s who sets the operational guardrails when commercial pressure collides with model risk. A PBC charter can, in theory, encode non-financial priorities, but practically you need hard mechanisms: an independent red-team budget with board visibility, publish-and-freeze safety commitments that can’t be quietly walked back in the S-1, and a binding incident disclosure policy (think SOC-style) for model regressions and abuse vectors. If California wanted durable leverage beyond a “we’ll stay” letter, they could have tied approval to these process-level controls with measurable KPIs (eval transparency, red-team scope, postmortem SLAs). That would make the social license less about geography and more about demonstrable stewardship. Curious if anyone spotted language in the MoU that bites at this level rather than just the incorporation mechanics. Cali could have called his bluff, he's not moving to Texas any time soon, and neither are his employees. In most cases I would say you are correct, but this would be an extremely rare exception. OpenAI has about 7000 employees, and has raised a round at a $500B valuation with a realistic shot at a $1T valuation at IPO. That's a range of $70-140M of equity value per employee. So if employees hold 10% (and that's a low estimate) it's an average of $7-14M per employee. So for the average employee leaving CA before IPO would be a $1 million benefit over paying CA cap gains taxes. Of course that isn't distributed remotely evenly and a lot of employees have not nearly enough to want to leave CA over taxes or just don't want to leave CA for other reasons. But OpenAI could easily say "HQ is moving to Austin. All employees must relocate and will be given $1M relocation bonuses." And the part left unsaid would be "Failure to comply means you lose 7 figures of options." Take rate on that would be >95%. TFA: > OpenAI had spent months making the case that it was the economic heart of the California economy—and would be willing to leave if Bonta blocked its plan to convert to a simpler corporate structure. https://x.com/sama/status/1983223056668746218: > California is my home, and I love it here, and when I talked to Attorney General Bonta two weeks ago I made clear that we were not going to do what those other companies do and threaten to leave if sued. Hmmm... OpenAI announced $10 billion ARR in June of this year (https://www.cnbc.com/2025/06/09/openai-hits-10-billion-in-an...). Agriculture in California hit $61 billion in annual receipts in 2024 (https://www.cdfa.ca.gov/statistics/). So, not that OpenAI isn't big, but, "the heart of the California economy"? OpenAI needs to IPO, because if they don't get in on the current meme stock economy, they're going to collapse. > if Bonta blocked its plan to convert to a simpler corporate structure. i'm a bit out of the loop but honestly why does California have a say? surely the investor base and Microsoft was a far harder negotiation than this one. this one smells of govt overreach. 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, it needed to raise truly absurd amounts of capital in order to get to the next model, and thus the lawyers had to spend a good long time extracting the company from the charity. For very good reasons, the laws make it hard to go from a charity to a for-profit company- because if you could easily transition between the two you could game tax laws with ease. In the end, being allowed to do this required negotiations, and promising to keep OpenAI in California- where they would be subject to other California regulations and taxes in the future. If they had a "normal" corporate history- had been founded as a Delaware S Corp from the beginning- then this wouldn't be a thing and they would be free to move as they like(1). But, being a weird charity probably helped them attract talent in the critical beginning phases (before it became a money race with Zuck), and it has consequences now. 1: Just as an example, Palantir moved their corporate headquarters to Denver from Palo Alto years ago without a peep from the CA government. > 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 I don't know whether or not OpenAI should be allowed to convert to a for profit corporation. That sounds like a complex legal question. But I'm pretty damn sure that the decision absolutely shouldn't depend on whether or not the company stays in CA to provide a cash cow for the government on IPO. This whole thing reeks of corruption. The entity in question operates in california and is thus subject to california law. California has laws around charitable entities. One might reasonably claim it's overreach, but in response OpenAI could just leave the state. Which is what they threatened. 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/... You link to a skadden doc, not an SEC rule, and in that doc the first words are: "Independence is neither a fixed condition nor a universal status for all purposes. " and goes on to talk about how complicated it is to even define and how it depends on who is defining it. Your document makes my exact point, not yours. You are out of your depth. > Independence is neither a fixed condition nor a universal status for all purposes This is true of all law. That doesn’t mean “people aren't even on the same page as to what” it means. > Your document makes my exact point, not yours. You are out of your depth It doesn't and probably not. How many boards have you been on? Public companies? Non-profit? Have you litigated a shareholder lawsuit under Delaware law? Violations such as? Such as those made up in people's heads because they don't happen to like a guy they never met. Sam Altman got fired from YC for lying, and from OpenAI for lying, then replaced the board. Now he wants to do a transaction that takes the most valuable company in the world from the nonprofit and rewards its financial backers. It's very reasonable to be deeply skeptical of this transactions legitimacy. Yes, blocking a NON-PROFIT from magically IPO-ing as a for profit company and therefore skirting years of taxes is overreach. Guys, the only state morally bankrupt enough to just allow that is Texas. Why do you think these tech bozos love Texas? It's basically cyberpunk over here. Our government actively hates us. We struck down paid water breaks in Texas. I once worked a job with no breaks at all. 10 hour days, no lunch. Yes, that's legal here. > I once worked a job with no breaks at all. 10 hour days, no lunch. Yes, that's legal here. For the life of me, I will never understand why workers vote against even the most minimal break requirements. Is it simply that the majority of voters already work a job that gives them breaks and so don't see the need to make it a legal requirement? That seems very much like a "pull the ladder up behind you" mentality. Corporations exist at the pleasure of government do they not? They are not some naturally-existing thing. > Corporations exist at the pleasure of government do they not? No. “At the pleasure of” means total discretion. The government can’t just stop letting businesses incorporate because it doesn’t like how a county voted. There is no constitutional right to incorporate. Theoretically states could stop it at any time. Although they would still have to honor corporations formed in other states so it’s of limited effect. > There is no constitutional right to incorporate The Constitution directly grants very few individual rights. It’s mostly a document about what the government can’t do. > Theoretically states could stop it at any time Sure. That’s not “at the pleasure of.” Driver’s licenses are not issued “at the pleasure of” a state. Neither are marriage certificates. They’re issued as a matter of process that binds both the issuer and recipient to a predictable set of rules. But there is a constitutional right to equal protection under the law. So while a state can say "everybody can incorporate" or "nobody can incorporate" without scrutiny, there are some pretty hash restrictions on rules that say some people can incorporate and others can't, especially if those restrictions look like they are written to be retaliatory against someone who pissed off the government. >The government can’t just stop letting businesses incorporate because it doesn’t like how a county voted. The government can revoke a corporation's charter at any time it desires to. No it can't. It must comply with other constitutional obligations like the equal protection clause and 1A. Basically any action to revoke the charter of a single corporation (or group of corporations) for any reason other than violating pre-existing law is going to be very hard to justify in court. And threatening to leave the state is clearly not against the law (nor could it ever be because that law would violate 1A). Furthermore, even if a state is able to revoke a corporate charter, it can't stop it from re-incorporating in another state and continuing to do business in the original state under its new charter (commerce clause). Why can't the government do that? Is it because the government created laws that limited its total discretion? That is besides my point. The people allow for corporations to exist is what I was getting at, and in the US businesses incorporate at the state level. So asking why California has a say in the structure of a company incorporated in it seemed odd to me on its face. > Is it because the government created laws that limited its total discretion? Yes. As you said, "the people allow for corporations to exist," and the same people created the government and allow it to exist. And when those people created that government they created rules that govern what laws the government is allowed to enact. Those rules are known as the constitution. And one of the first rules the people made when they created the government is the aptly named "first amendment." And that rule clearly states that the government can't take legal action against a citizen for saying something the government doesn't like. The CA government retaliating against OpenAI for its CEO threatening to leave the state would clearly violate this rule. > that rule clearly states that the government can't take legal action against a citizen for saying something the government doesn't like. The CA government retaliating against OpenAI for its CEO threatening to leave the state would clearly violate this rule What? Conspiracy to commit a crime is punishable. If you're credibly threatening to do something that could be unlawful, the state can pursue that. Altman, of all people, is not being punished for his speech. Nor has he any track record of free speech bona fides to stand on. Moving a corporation out of state isn't a crime. Not sure what any sort of track record has to do with any of this. I would think that sort of framing implies that the government gives them permission to exist. Rather than, the natural state is that they exist unless they do something bad enough to be shut down. Unless you mean, they need the government's "permission" to even file to become a corporation... But even in that case, you aren't asking for permission, you're doing the old school equivalent of signing up for a domain, you're submitting a filing and reserving a spot for that name/ID. It's more than that. When you file to incorporate, there is a birth. A new person is created, one that can potentially never die. Yes, it's routine, but it wasn't always, and it doesn't need to be forever. The ability to create a new, fake, person in order to shield yourself and your business partners from liability is a not a right. It is a deliberate policy that some sovereign jurisdictions allow their citizens. > I would think that sort of framing implies that the government gives them permission to exist. > Rather than, the natural state is that they exist unless they do something bad enough to be shut down. JFC, come on. Corporations are legal entities and have no existence separate from the law. If they even have a natural state, that natural state is non-existence. > If they even have a natural state, that natural state is non-existence A corporation is a legal fiction that describes an association of people. The association is real and has a natural state. The corporate existence does not. (Analogous: a house is real. Land is real. Property is a social construct.) > All corporations are devoid of inherent nature. > There is no inherent nature whatsoever. > What is inherently existing is empty. > What is empty is inherently existing. Nāgārjuna vs Delaware Yeah I think we're splitting hairs and actually aren't in any sort of disagreement here. I 100% agree that you have to be registered on paper with a government entity to get all the legal protections, insurance, etc etc etc. I've been a business owner for nearly 20 years. Like, a real business, with real paperwork and insurance and all that. I'm thinking of all the unofficial mom and pops that transact and do business every day without having a proper legal entity. so it's more of a "does that count as a business even if they didn't file articles of incorporation?" of course it does, as far as its customers are concerned. Think of the idea of "this guy has a lawn care business, I pay him every week to mow my lawn for 10 years", as far as his customers are concerned, he didn't need to get permission from the government to start doing that. And this sort of thing happens all the time. I am NOT arguing whether a business where you filed articles is a legal entity, etc. There's no question that they are. Hope that clarifies my point. Musk said the same thing about CA too. All CEO's make decisions based on what is best for them and their companies. There is no loyalty in business. Edward Niedermeyer, author of “Ludicrous: The Unvarnished Story of Tesla Motors,” said Musk was happy to benefit from California’s largesse when it suited him and to move on when he saw fit. “I think Musk has made the calculation that he’s gotten all the benefits he’s likely to get out of the state and he’s moving on to the next one,” Niedermeyer said. “The state of California clearly thought that all its work bought loyalty [from Musk] but, instead, I think it bought a sense of entitlement.” Elon Musk’s messy divorce with California leaves ugly grievances all around:
https://www.latimes.com/california/story/2024-07-23/elon-mus... This feels like a narrative being pushed. Tech oligarchs these days are flexing by showing off how much they are able to bully government, and Altman wants to get in on the game by spinning things this way. I’m not convinced they really bent the rules for OpenAI any more than usual given they only employ a few hundred people. OpenAI has over 5,000 employees. In addition to their headcount, they are now the highest valued private company in the world. They're going to have some leverage. I doubt OpenAI has to try very hard to convince state politicians, especially to the point of bullying. It's usually the complete opposite where they throw money at you to stay. Imagine if California managed to scare away the hottest company in the world and all the tax revenue it brings... Targeting 1 trillion valuation They'll probably get it and quickly hit $2T as a meme stock, just like $TSLA. This is kind of a wild story. Sam Altman is openly flexing that he was able to skirt the rules and regulations by threatening economic damage to California. It's not even subtle anymore. This reminds me of when the former CEO of Hyundai, Chung Mong-koo, went to prison for embezzlement. In just 3 years he was pardoned because the President of South Korea basically said, "we need you for the economy." We're not even pretending that the government is in control anymore. It's just full on anarcho-capitalism on display. > threatening economic damage to California. whoa there. corporations have the right to move to the best location for them. California does not have the eternal right to OpenAI's taxes and employee base. think about what you're implicitly assuming here. if one company simply leaving causes concerning "damage" then perhaps it is the government that is the problem, not the corporation driving economic growth. Corporations are applications of government power and have no natural rights, their legal rights are at best proxies for the rights of natural persons with some interest in them, and at worst a fiction which serves to limit the rights of natural persons. Also, having a right to do something does not contradict a description of you leveraging power by using a threat of doing it, in the first place. > Corporations are applications of government power and have no natural rights Sure. Whatever. The people who own and work at OpenAI have no obligation to remain in California. (I’d also argue that global norms are currently walking back from the notion of natural rights pretty much everywhere except for in some parts of Europe. The concept doesn’t work without an appeal to divinity.) The legal entity is what owns the IP, contracts, obligations, property, etc… so even if 100% of the current employees and owners moved, their collective worth and prospects would be significantly reduced if the legal entity doesn’t also come along. > California does not have the eternal right to OpenAI's taxes and employee base ehh.... https://www.greenbacktaxservices.com/blog/california-exit-ta... Skip to the "What California Can Still Tax After You Leave" section If they do this to people, i am sure they can to corps too Can someone explain to me what Sam Altman is doing to be so far ahead of everyone else in terms of navigating these high stakes roles? This happened at YC and a number of other places too, he goes into situations with nothing and comes out on top despite all odds. Is he that skilled an operator, negotiator, or manipulator or something? There is a book written about this topic. SA is the classic manipulator. He talks to each person whatever they want to hear, irrespective of what he really believes. Many of the things he says about AI and OpenAI are clear BS, but he'll sell that to anyone with a different flavor. His pattern seems to be: (0) Be exceptionally intelligent and capable of applying that intelligence to people, not just code or math — necessary for everything that follows. (1) Keep attention diversified as long as possible until the winning path becomes obvious. (2) Focus on fringe bets, but pursue many simultaneously until one clearly dominates (see (1)). (3) Extreme social manipulation — people-pleasing, control- and power-seeking, selective transparency, skillful large-scale dishonesty, and a willingness to hurt or betray when it serves (1) and (2) and the relational cost is acceptable. (2) brought him into the startup ecosystem and the first YC batch in the first place (he had to start somewhere); combined with (3) he made an early fortune from a failed startup. (3) also ingratiated him with PG and others in those years. (1)+(2) ensured he always had exposure to every plausible frontier of the industry; when he was effectively fired from YC for (1)+(3), (2) made the OpenAI pivot the next obvious move — and a better one. (3) almost cost him his career a second time when the board fired him from OpenAI temporarily, but he survived because (3) also ensured he had enough to offer everyone else that he leveraged his way back in. I can only speculate so take it with a spoon of salt... But people who are really good at sussing out other people's wants can find ways to make more people happy. It's like a maze of interests and I guess he's just really motivated and good at navigating and aligning them (at least among the rich and powerful). He also seems to understand something about power and perception, in that he takes calculated risks that seem to keep working out. So in other words, he seems to be an extraordinarily skillful politician (in both the general and the Patrick Lencioni sense). It's too early to say if his risks "keep working out". Restructuring is not a risk. His, and others', original decision to make the company a non-profit was also not a calculated risk in this sense. When he was fired from OpenAI, his use of employee manipulation to regain his position is not a risk; it is the only option he had. It was his bond maturing, of carefully cultivated loyalty he had accrued over years. Gaining that loyalty was not really a risk. It was smart politics. One risk he took is: signing away such a large portion of the company to Microsoft. I'm not sure whether that is working out. Another risk he took is: neglecting and sidelining the "safety" portion of his organization. This caused a talent exodus and led to the formation of many competitors. I'm not sure whether that is working out either. > Restructuring is not a risk...his use of employee manipulation to regain his position is not a risk; it is the only option he had In both cases he had the option of accepting the status quo. [flagged] This is the guy who had everyone here rooting for him when the OpenAI board tried to kick him out. Which was almost certainly the result of a very successful PR campaign carried out by him. He's not really comparable with Jobs. This guy is a politician and Jobs was a product guy. I don't recall "everyone" rooting for him when OpenAI board tried to kick him out. Not even on HN. Around 95% of the OpenAI engineers signed a letter to the board threatening to quit unless he was reinstated. > This guy is a politician and Jobs was a product guy They're both excellent marketers. Not at all. When people say this statement about Jobs, it tells me how little they know about the man. S Jobs was a clinical and clear communicator. Altman in comparison? Lmao. > When people say this statement about Jobs, it tells me how little they know about the man Going to bet I’ve met them both more times than you have. Neither man was or is an archetype. You havent met anyone fella. I see your posts here all the time - full of bluster. Lol what? You need to do more research fella. Did it not ever occur to you that Jobs got the recording industry to dance to his tune to offer music for under a dollar? He did the same with the iPhone - smashing the control cellular network providers had over handset producers. "This is the guy who had everyone here rooting for him when the OpenAI board tried to kick him out." Finally... oh this is just funny. Who rooted for S Jobs when he was kicked out of Apple, and cheered for him on his return? ..... It's a bit much to say he goes into situations with nothing - he, along with others created OpenAI. It's a decent sized company now and they have sway with governments. All decent sized companies do as employers. This kind of stuff happens all the time and it just doesn't get reported as much. It's a great question. Here are two Paul Graham (PG) quotes on Sam Altman (Sama) from 2008 and 2009. Note, PG is the founder of YC, Sam's former boss, and the one who removed Sam from the position of President of YC after first appointing Sam to succeed him as President of YC. (Sama was more focused on OpenAI than on YC at the time, which doesn't work when you're supposed to be leading YC.) 2008 Essay "A Fundraising Survival Guide"
https://www.paulgraham.com/fundraising.html Sam Altman has it. You could parachute him into an island full of cannibals and come back in 5 years and he'd be the king. If you're Sam Altman, you don't have to be profitable to convey to investors that you'll succeed with or without them. (He wasn't, and he did.) Not everyone has Sam's deal-making ability. I myself don't. But if you don't, you can let the numbers speak for you. 2009 Essay "5 Founders"
https://paulgraham.com/5founders.html 5. Sam Altman
I was told I shouldn't mention founders of YC-funded companies in this list. But Sam Altman can't be stopped by such flimsy rules. If he wants to be on this list, he's going to be.
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What I learned from meeting Sama is that the doctrine of the elect applies to startups. It applies way less than most people think: startup investing does not consist of trying to pick winners the way you might in a horse race. But there are a few people with such force of will that they're going to get whatever they want. That's PG's take on Sama. I would say, looking at a wide range of Sam Altman's more investments
https://observer.com/2025/06/sam-altman-startup-investments/ from OpenAI to Helion energy (Fusion), to Retro Biosciences (longevity), Neuralink (brain computer interface), to Reddit Sama really wants to "build the future," and when some of those investments "hit", like OpenAI did - basically become the first new company with a clear path to a $1T valuation since Facebook or TikTok), you gain immense credibility for "betting the future will happen and getting your organization there first." If YC's motto is "build something people want," and OpenAI is now serving 800M active users while delivering incredible revenue growth (and investors want to see both). Sama gains power by giving investors what they want, by giving users what they want, and basically authoring an entire new type of software company and a new part of the economy. A thing to note here is that, being a YC partner and top angel investor from 2011 to 2020, you can argue that Sam himself is "the most successful YC graduate." He saw thousands of companies go through YC. He saw hundreds of 'hard tech companies' go through YC. And in that decade, he could only have learned an immense amount about how VCs/successful CEOs think and make decisions. Certainly, we see the learnings of those experiences in what he's been able to pull off since. > Is he that skilled an operator, negotiator, or manipulator or something? He probably has everything every politician has ever asked chatgpt index and ready to be emailed out at any given time? Democracy lets us swap out our king and some of the nobles. The dukes and earls are still essential to run the nation, and must be courted. didn't Sam does this before with another company? he was able to restructure it and come out on top... searching for article... was it Helion? now that i think harder, didnt he comment about it on HN?? That seems like expected behavior from someone whose barely veiled pitch is "the first one to AGI will IPO - Install Planetary Overlord.[1] Give me money and be part of the future ruling elite!" (Whether his actual plan is based on what he's saying in public, or to take the money and run, permanently install his company as in inescapable rent-extracting middle-man for modern life[2], or something else, I don't know.) 1. Credit to Charles Stross, The Jennifer Morgue
2. Thneed-style capitalism This is very cynical, and almost certainly deliberately false take. Many situations are fundamentally uncertain with respect to laws/rules in place. The idea that they "skirted rules and regulations" is wrong. Did they push in an attempt to get a decision made which would favor them? Sure. But there was a decision to be made. And, the people are supposed to be in control anyway, not the government. This is Sam Altman we're talking about, a man with a long track record of conning people. I don't think any benefit of the doubt is warranted here - I'm going to assume guilty unless and until clearly proven innocent because you only get to screw people over so many times. It doesn't matter who it is, it's naive about how the legal system works and takes the worst possible view of all the actors involved. This wasn't some straightforward matter. Many things are not. OpenAI are not obliged to passively sit and wait while various other parties try to influence the outcome (and there were many, and they weren't nobodies). The government believed him that OpenAI will stay in CA the same way that that government, OpenAI founders and others believed that OpenAI will be non-profit. I think here is the answer to another commenter's question about success - it looks like great success comes to one who is able to recognize in time when old obligations become "obsolete" and thus drop them well before those obligations start to block or heavily tax the way to further success. Is it possible for a poor fool retail investor to invest in OAI The bag is being designed, cut and stitched, with retail investor shaped handles. From what i understand, and I’m no expert, is that all the smart money Is able to get in on an IPO early on way before retail investors have a chance. By the time the retail investors have a chance it’s too late and usually the stock dips post IPO as the early investors sell. Of course the stock can rise again eventually. Just buy $QQQ. The correct time to invest in individual companies is never. How much? I recently downloaded about 10 years of monthly price returns for QQQ, TQQQ, NVDA, GBTC, and a few others. Then I asked ChatGPT and Gemini (separately) to find the portfolio that maximizes an adjusted CAGR — roughly, mean return minus ½ × standard deviation². Result: 70% NVDA, 30% GBTC (Bitcoin), and 0% QQQ or TQQQ.
Honestly, not a bad mix — especially for a small, high-risk slice of your portfolio. Next, I compared TQQQ (Triple Qs) vs. QQQ using the same 10-year monthly data. The optimizer picked 100% TQQQ, which again makes sense if you’re doing this in a tax-advantaged account like a 401(k) or IRA and only with money you’re willing to take some risk on. Then I expanded the dataset — 55 years of returns across major asset classes (S&P 500, gold, short- and long-term Treasuries, corporate bonds, real estate, etc.) — and asked for the optimal portfolio.
The winner: ~85% S&P 500, 15% gold, though 75/25 gives nearly the same return with a better Sharpe ratio. A few quick takeaways: Gold → GLDM ETF is the best vehicle. QQQ → QQQM or TQQQ are the best versions. And if you’re feeling adventurous: 70% NVDA, 30% IBIT (Bitcoin) isn’t crazy. For what it’s worth, I’ve been running 75% stocks / 25% gold for a while now, but I’m thinking of carving out ~10% of the stock portion for a more aggressive tilt: TQQQ (6%), NVDA (2%), IBIT (1%) — because why not? "the portfolio that maximizes an adjusted CAGR" over the ranges 2015-2025? Isn't that one just massively overfitting to the unique geopolitical events of 2016-current? 1970-2025 sounds better. But still that's baking in the USD exchange rate. What happens if you backtest it by finding the equivalent portfolios for 1998-2008 (or even 1919-1929?) Are those pre or post tax returns? Gold is taxed as a collectible which is pretty bad. Thinking about it, my recommendation is read: https://www.reddit.com/r/personalfinance/wiki/index/ and then after maxing your 401k, open a Betterment account, and then max your HSA if applicable. The tax savings easily best custom portfolio picking. Good to see California coming to its senses after years of fever dreams. Disparaging their tech blessings and holding their biggest revenue source in contempt out of jealousy was a losing strategy. Hopefully those people are marginalized more and more and we can again celebrate technology innovation and the vast wealth and prosperity it brings millions of people. Where else would OpenAI move to? Texas? Florida? Pretty much wherever shareholders think they could get a better deal. At the end of the day that's all that matters to OpenAI. Even calling it open anymore leaves such a sour taste. 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? They founded OpenAI on the explicit premise that advanced AI poses existential risks to humanity, and that a non profit structure was essential to prioritize safety over profits. They reaped major benefits from this status, including tax exemptions, easier talent recruitment (by appealing to mission-driven researchers), and massive donations. Then, once GPT models exploded in value, making the for-profit arm worth tens of billions, they attempted to restructure toward a public company model to let investors and insiders cash out at scale, while claiming the non-profit board would still "control" the direction. This directly contradicts their original charter, which warned that profit motives could lead to unsafe AI racing. Now it is clear that we are nowhere near AGI, and hence they have to make money from making fake tiktok videos and smut. And they just want to cash out because the original premise won't deliver. Specifically it was very disingenuous and that is why people hate it. 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. What about me, a random person? As stated in their foundational legal filings, the primary activity of OpenAI is supposed to be described as:
OpenAI, Inc. ("OpenAI") is a nonprofit artificial intelligence ("AI") scientific research organization. Its goal is to engage in research activities that advance digital intelligence in the way that is most likely to benefit humanity as a whole, unconstrained by a need to generate financial return. AI technology will help shape the 21st century, and OpenAI wants to help the world build safe AI technology and ensure that AI's benefits are as widely and evenly distributed as possible. To that end, OpenAI hopes to build AI as part of a larger community, and wants to openly share its plans and capabilities along the way. As a member of humanity as a whole, they are supposed to be operating for my benefit, not primarily for the benefit of their investors. If they wanted to operate primarily for the benefit of their investors, they should have been paying taxes on every dollar they brought in. > As a member of humanity as a whole, they are supposed to be operating for my benefit No. The common good refers to “what is shared and beneficial for all or most members of a given community” [1]. There is no individual claim to benefit. You can feel misled. Sort of like when a visionary promises something you want and then fails to deliver. But that doesn’t mean you were materially misled, which means you aren’t owed anything. > they should have been paying taxes on every dollar they brought in We don’t tax investment in America. It's not that I think they owe me (or any one specific individual) some specific material value, it's that I don't believe they should be allowed to "take the money and run" after amassing it under the guise of being a charity. Their options should be to continue their mission or to donate their assets to other charities that might be able to further their original mission. Anything less is an affront to those that donated, those that the charity was supposed to support (which is everyone), and any customer that believed their dollars were being spent on a product under the management of a charity. While it's true that we don't tax investments, we do tax gifts past a dollar value threshold, which is what donations become when nonprofit status drops away. I agree that the whole thing seems shady. But I'm struggling to identify anyone who was hurt. Vague notions of "everyone" doesn't really pass muster--if we can turn that into trillion dollar companies, we should do that! It's not that I want to see someone made whole for some hurt. What I want to see is for government to do its job and stamp a big "DENIED" on OpenAI's request to reorganize. The response should be "Sorry if you feel like you screwed up your corporate structure, but your money really is locked in this non-profit and you can't just take it out". Edit: Put a different way: Your point seems to be that there is no civil law damage so nothing can be done. My point is that this isn't a civil law matter, it's a corporate law matter: it's not about damages, it's about the social contract we hold corporations to in exchange for allowing them to exist. > What I want to see is for government to do its job and stamp a big "DENIED" on OpenAI's request to reorganize To what end? How thrilled would we be if an adversary nation did this to its golden goose? > it's about the social contract we hold corporations to in exchange for allowing them to exist Their job is to create wealth. For the time being, OpenAI is creating wealth to the tune of the GDP of the Phillipines or Norway [1]. If it's puffery, pursue it afterwards. If if not...we gained the annual production of a Nordic petrostate. When it goes public, we'll earn tax revenues equal to the entire economy of a small EU member. Wealth doesn't make right. But I'm failing to see an incurable harm here that outweighs the upside. [1] https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomi... Converting from a non-profit open source organisation to a for profit private company, and to be shareholder public company, is, in my humble opinion, extremely harmful for potentially the most impactful technology humans have created before. When companies are profit driven, the line must go up, shareholders need the line to go up, at all and any costs. > When companies are profit driven, the line must go up, shareholders need the line to go up, at all and any costs How is that complaint separate from OpenAI having been started as a for-profit entity? It's not bit when your IPO starts at 1 Trillion the number is starting at an extraordinary high bar. And I actually already do have a problem with OpenAI transitioning to a for profit company. But let's see how it plays out, out of our hands now. choosing whether to use, or advocate for, a company's services is a form of support > choosing whether to use, or advocate for, a company's services is a form of support Sure. But if the services are rendered, the ideology is orthogonal. For the slim minority of uncompromising zealots for whom it is not, damages can be quantified and paid. are you asserting this is the way things should work, or how they do work, or both? > are you asserting this is the way things should work, or how they do work, or both? How it does and, to a limited degree, how it should. If you donate to or volunteer for a non-profit, you have non-pecuniary interest in how they are run. If you're sold a product that's promised to be made in a certain way, you do too. If you paid for--much less used without paying--a service because you thought it was ethical per some definition, but aren't similarly bound in other purchases in your life, or otherwise can't show this is a value you consistently follow (and so, in being denied it here, have been damaged), I'm not sure any functional economy can work where anyone has a free option to take back a purchase--or much less, non-monetary use--at any time in the future because they feel--but can't materially demonstrate--betrayal. Like, maybe if Stallman used ChatGPT he could credibly claim he wouldn't have used it if it hadn't marketed its claims around goodness. But I'm deeply sceptical a rando has the same standing. > The workers and supporters who were taken by this idealistic vision I haven’t heard from any of the workers. Why are people white-knighting for them? My hot take is that they don’t mind being able to afford a house (or more) for their efforts. Where’s the outraged employees in this conversation? As for “supporters,” what does that mean? People who watch from the sidelines and never actually contributed don’t usually get a say. Donors get a say, did donors get any stock? Its very ugly when you built your for profit by stealing donations from a non-profit, people can condemn that even if they themselves didn't personally lose money similarly to how we can condemn companies abusing people even if we didn't work there. They are chronically online and reading uninformed headlines by fellow youth. Combined with a feeling that they don't like this wave of GenAI, you get a lot of uninformed hate that's deeply felt, and probably reasonably felt. But also totally uninformed. If only everyone was as enlightened as you are. I at least like to be informed - I sense you disagree with my hot take.. Any concrete thoughts other than performative eye rolling? > The non->for profit status of the company is not impacting anyone. They're quite literally running away with millions in tax money they stole. That means from YOU. It's a sense of entitlement that pisses people off. Imagine you're a hardworking American who pays his taxes for the betterment of his country. And then here comes this Sam Altman douchebag, who thinks he's so important he doesn't have to pay taxes. He thinks you should foot the bill, because you're nobody, and he's Sam Altman. If you're not at least a little bit pissed at the precedent this is setting, I personally view that as pathetic. 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. 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. > oAI is going to be one of the enduring tech consumer brands built in this half of the 21st century I am curious why you think that, they're early to market but that by no means guarantees them a long term place at the table. 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. Look at all the companies that have 'burned cash' with no viable path to profitability over the last 20 years. The good ones outlive that criticism, easily. Think Uber, etc. They clearly see a path to profitability and they have plenty of room to experiment here with what works. With new partnerships and dependencies, they won't run out of cash for a long time. I don’t know the exact numbers, but I feel like OpenAI raised far more money than those companies, burned through it far quicker and has much more competition with a much shakier value proposition. They definitely have a strong consumer brand so it’s not like they’re going to disappear, but I understand the bear case. I would not be convinced they outlive the criticism. I think it's highly likely in the next 10 years companies like Spotify and Uber will no longer exist. They're fundamentally antogonistic to their capital. Spotify is a profitable business now though right? Sure it doesn’t make huge profits due to paying out about 70% to larks but it’s finally profitable Yes, barely, and after cutting revenue per stream to 1/4th of what it was. Many artists make negative money on Spotify, because you have to pay them to put your music on there. And then if Spotify thinks bots are listening to your streams, you have to pay them more. It's the same problem for Uber. Many Uber drivers make a negative wage. They don't know it, because nobody is going to tell them, but if you do the math, depending on your location, vehicle, and rates, you make a negative wage. Due to gas cost, tolls, maintenance, etc. The problem here is that the uber drivers and artists are the only thing that makes the platform worth using. Spotify might think their capital is technology. That's because they're stupid. No, their capital is the library of music artists put on there. If you continue to just antagonize and destroy your own capital that you're using to make money, your business will be blow up. I’ve written about it at some length here, but tldr: their ops are super profitable, likely 1bn per month net income right now. Their R&D costs are immense. You need to believe a story in which their R&D is a waste and other Competitor’s R&D is not or alternately all R&D in the space is a waste and they somehow are unable to use their capital advantage to maintain their substantial brand lead before you believe they are doomed. > With an annualized revenue run rate expected to reach about $20 billion by year-end, losses are also mounting inside the $500 billion company, the people said. There is a time limit for shareholders to make return on that investment and so far their operating costs are astronomical given they don't yet seem to offer any substantial product that can't be without, if anything, they're pushing people further away from AI with the slop their churning out. reference : https://www.reuters.com/business/openai-lays-groundwork-jugg... I have always thought it would eventually be owned my Microsoft. The only uncertainty is the path it takes to get there. Given the froth in the market right now, I think there is a good chance the IPO gets scrapped if we are talking mid 2026. An IPO at a trillion would work right now but mid 2026 is a long ways away. Like how the Deepseek moment feels like ancient history but it wasn't even a year ago. Could you elaborate? Not looking for a proof, just want to understand your train of thought. Always liked your commentary. Thanks! An IPO is traditionally thought of as a way to raise capital in amounts that are not available privately, but more recently IPOs are just a way to transfer vast amounts of wealth from speculating retail and institutional investors to stakeholders. The IPO itself is the least interesting thing: if Microsoft wanted they could avoid the IPO and instead offer to buy the shares beforehand. If the financial future of OpenAI is not as rosy as they say it is then there is a fair chance that post IPO the stock will not rise. There are plenty of signs that this is the case, including the 'erotic' version of ChatGPT slated for release in December, the strong push to monetize even the most inane interactions and the mention of advertising as a possible source of income. All of those combined tell me that OpenAI is seriously worried about their bottom line. But Microsoft already has a bottom line and AI is the one way in which they could put one over on Google, which they've been dying to do for many years. So the logical progression to me seems to be: - do the IPO, everybody associated with OpenAI will be filthy rich (including MS) - attempt to polish up the financials - if that fails activate plan B, have Microsoft make an offer to take OpenAI private again The hype around this IPO increases the chance the stock will drop post IPO. Spitballing There is no clear path to the trillion dollars today. By IPOing, the owners (who have a good idea of where it's going) can exchange their ticket to the trillion for cash today. Seems like a bad deal unless you know the ticket won't get called. Then you've just made bank. And you might have noticed some form of hype around AI these last few years - arguably this could be to make the trillion dollar seem more realistic and therefore making the owners more money when selling their ticket to it. Probably predicting either pop of AI bubble like dotcom in 1999 or the OpenAI emperor has no clothes and the marker sees its shrunk hunk. 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. It used to be that you could find an IPO underwriter after 100M in revenue and growing YoY above others in the competitive basket. I’m not sure that’s true anymore, I think you still need the revenue, but just need attention. everything else is just whatever because you can’t predict 10 year outcomes for any business at this point with any level of confidence, and there’s nothing to compare it to other than extremely different businesses. Ultimately it’s more of the same goal with differing levers: Offload a massive illiquid investment onto the public so that investors make their fund Make sure it can tread water long enough for people to forget about it so it can go through the long and slow enshittification period After all the prime investors have liquidated and some cooling period, risk of lawsuits from activist investors drops significantly, they can ratchet up the margins, do a few years of layoffs to pump the price. Then everyone involved is back to where they started, only the top 100 richest people put even more distance between themselves and everyone else so they can now invest in radical life extension or whatever For folks curious, In terms of IPO, rule of 40 was common when I was involved in thinking about IPOs. https://www.mckinsey.com/industries/technology-media-and-tel... Depends how you look at it but at DO we shot for 50, ended around 55. (25 % growth + 30 % profitability) > "Offload a massive illiquid investment onto the public so that investors make their fund" This is what it looks like to me. Crazy growth numbers to bump the valuation and public interest, go public, gradually let the company shift into irrelevancy after major owners have cashed out. The smoke and mirrors part here is that no one except the AI research community knows what the ML/AI capabilities will look like in 5 years. What that means is that the general public is probably going to eat up this IPO. Probably a better move to hedge by buying Microsoft, but whatevs. > Offload a massive illiquid investment onto the public so that investors make their fund Anyone with OpenAI stock can do this in the private markets right now to the tune of hundreds of millions of dollars. Not billions. But I'm not convinced liquidity--versus appreciation, for investors, and access to capital, for the company--is the primary motivation for going public. I agree with you and I hope you are right. >Offload a massive illiquid investment onto the public Because this state seems like a very solvable problem: All you have to is not buy it ETFs like VOO will buy it eventually. It started me wondering if theres an ETF that explicitly avoids the top 20 companies My gut instinct is that this would be a hugely underperforming investment strategy on both an absolute and risk adjusted basis. I would welcome empirical evidence contradicting my gut. I'd rather cross to international (including. US) than to that, for a less performing but more Black Swan proof fund. A ton of regulation happened after 2008/09. So to even become a public entity it’s a ton of effort and expense. And scrutiny. Not saying the laws are bad (but overdone) but the side effect is that small companies with upside don’t go to the public market now. Among other reasons like better developed VC outlets. That were formed because of the regulations. CA needs the UHNW taxpayers lol
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https://www.svcf.org/about/news-media/blog/california-attorn... But who oversees how charities use their assets and ensures that they are used for public benefit?
That job lies with the Charitable Trusts Section of California’s Office of the Attorney General, which is part of the state’s Department of Justice. Charged with both regulatory and law enforcement responsibilities, the section has a big job.
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