Could Elon Musk Be Behind OpenAI's Turmoil?
Could Elon Musk Be Behind OpenAI's Turmoil?
Elon Musk has a long history with OpenAI and a major feud with Sam Altman. This issue examines how he * could potentially * be behind the recent turmoil at OpenAI.
OpenAI is the brainchild of Sam Altman, Greg Brockman, Elon Musk, and a motley crew of Silicon Valley elites. The idea was that Google was too far ahead of everyone in AI technology and there needed to be a counter-weight to Google’s dominance.
As such, four co-founders Sam Altman, Greg Brockman, Ilya Sutsekov, and Elon Musk launched OpenAI as a non-profit in 2015. Musk was supposed to be the main source of funding for the company.
In the start, the corporate structure was simple: a non-profit controlled by a board with just Sam Altman and Elon Musk on it.
In the first few years after inception, the company moved slowly and by 2018, Musk had not only become deeply impatient, he was also the venture’s largest donor at the time. As such, he made a power move to try and take over. This was not uncharacteristic of the brash billionaire.
Sam Altman was not happy with this and clashed with Musk in the boardroom.
Altman somehow came out ahead and the defeated Musk furiously left the board. Altman’s successful move against the headstrong rocket ship/electric car billionaire is a testament to his political and business acumen.
The problem was, without Musk, OpenAI lost a major source of funding and none of its other wealthy backers were willing to donate the billions of dollars required to fund its lofty ambitions. The solution to this was a new corporate structure that incentivized profit-seeking outside investors to fund the company.
One important restriction for this new structure is that the non-profit had to remain to keep the original mission intact (safe AI that benefits all of humanity).
To create this hybrid corporate structure, a new capped profit entity called OpenAI Global was introduced. Capped profit means that investors can only make 100x their investment and any additional profits must be reinvested into the company.
Then, some serious corporate spaghetti was added so that the non-profit is the majority owner of this new for-profit entity.
Perfect. Even without Musk money, the company is now ready to receive outside funding through OpenAI Global. The first major investor to step up was Microsoft with a $1 billion investment in 2019. This was followed up by a $10 billion investment in early 2023.
This latest round made Microsoft a 49% minority owner of OpenAI Global while OpenAI’s board owned 2% and employees and other investors owned 49%.
Great. With this setup, OpenAI can still stay true to its original humanity-focused mission of safe and widely accessible AI while Microsoft can pour in billions to fund hefty employee salaries and all the high-performance compute they could dream of.
The problems with this corporate structure that would ultimately enable the recent turmoil are (1) the board owned a tiny portion of the company, (2) CEO Sam Altman owned even less, and (3) Microsoft couldn’t get a board seat. Microsoft is a for-profit investor and a board seat would give them control over the non-profit portion of OpenAI. This was strictly against OpenAI’s core mission.
In addition, through internal strife, the board wasn’t able to add new members and it remained small with just six members.
In any case, despite these weaknesses, the oddly structured company worked spectacularly well for a few years. OpenAI launched pivotal AI products to the mass public like ChatGPT and Dall-E and quickly became the world’s leading AI company. Its valuation shot up to almost $90 billion.
Musk was livid. OpenAI was his non-profit brainchild and he donated a big chunk of its early funding but now Sam Altman, who kicked him out, is getting all the credit. To add insult to injury, OpenAI also recruited away Tesla’s Director of AI, Andrej Karpathy, in February.
Not surprisingly, Musk took to Twitter to complain.
“I’m still confused as to how a non-profit to which I donated ~$100M somehow became a $30B market cap for-profit. If this is legal, why doesn’t everyone do it?”
In a podcast interview shortly after this tweet, Altman had this to say: “Elon is obviously attacking us...I have empathy because I believe he is, understandably so, really stressed about AGI safety.”
Now let’s go to the present day, specifically last Friday, when OpenAI’s board suddenly and inexplicably fired Sam Altman. We would later learn that the key instigator of this move was board member Ilya Sutsekov. Remember, Sutsekov was one of the four OpenAI co-founders alongside Sam Altman, Greg Brockman, and Elon Musk.
The key fact here is that Musk had originally convinced Sutsekov to leave Google and join OpenAI. This move created a rift between him and Google cofounder Larry Page but to Musk, Sutsekov was worth it. It’s clear that Musk continues to hold Sutsekov highly when he publicly defended Sutsekov for leading the motion to fire Altman.
“I am very worried.
Ilya has a good moral compass and does not seek power.
He would not take such drastic action unless he felt it was absolutely necessary.”
Musk has his own OpenAI competitor now called xAI with a ChatGPT-like product called Grok. Turmoil at OpenAI is beneficial to xAI and the firing of Altman is sweet vicarious revenge for Musk.
To be clear, we’re not claiming that Musk played a role in Altman’s firing, we’re just pointing out that the preconditions and the incentives are conveniently aligned. If anything, it’s just fun to consider all the possibilities in this high stakes game of boardroom chess.
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