OpenAI\u2019s corporate restructuring is likely to slip into next year, as the ChatGPT maker negotiates over critical terms of its future relationship with Microsoft, complicating plans to raise billions of dollars more in funding.<\/p>\n
The $300bn artificial intelligence<\/a> start-up has been locked in complex discussions with the software giant, its biggest backer, to rewrite an existing commercial contract between the companies that runs until 2030.<\/p>\n A deal would allow OpenAI to complete plans for a restructure that would allow investors to hold equity in the business and unlock a future initial public offering. But multiple people with knowledge of the talks said there is still distance between the two sides on important issues that could push negotiations beyond December 31. <\/p>\n Failure to reach an agreement by that date would allow SoftBank to withhold its $10bn commitment<\/a> to the company, according to the terms of the Japanese group\u2019s investment. It could also hamper OpenAI\u2019s efforts to raise more capital.<\/p>\n There are several outstanding points to resolve with Microsoft, according to multiple people close to both companies. <\/p>\n The first is Microsoft\u2019s access to OpenAI\u2019s \u201capplication programming interface\u201d or API. Microsoft has exclusive rights to host OpenAI\u2019s models on its Azure cloud service<\/a>, making it a critical gatekeeper to the technology.<\/p>\n OpenAI is pushing for additional partnerships with Google and Amazon Web Services, an arrangement similar to rival Anthropic, according to people with knowledge of the talks.\u00a0That would boost the start-up\u2019s API sales revenues, which account for roughly a quarter of current annual recurring revenue of $12bn.<\/p>\n While Microsoft has little incentive to cede access to rival cloud providers, the two companies are negotiating a narrow agreement that would enable OpenAI to only serve government customers that are not on Azure, according to one of the people.\u00a0<\/p>\n Second, the companies are wrangling over Microsoft\u2019s future access to OpenAI\u2019s intellectual property, and whether the software giant will see how future models are trained or merely be able to use them in its products, according to the people.\u00a0<\/p>\n A related point of contention is a so-called AGI clause written into the contract. This empowers OpenAI to cut Microsoft\u2019s IP access if and when the company achieves \u201cartificial general intelligence\u201d, defined as \u201ca highly autonomous system that outperforms humans at most economically valuable work\u201d.<\/p>\n Microsoft chief Satya Nadella wants to do away with the clause entirely, according to people familiar with the negotiations. But OpenAI is pushing to retain it in some form, as it provides the company with powerful leverage over the tech giant.<\/p>\n \u201cOpenAI having the AGI clause is negotiating chit,\u201d said one person with direct knowledge of the negotiations. \u201cIt\u2019s a threat, but it\u2019s more like mutually assured destruction because if it doesn\u2019t go by year-end, they won\u2019t be able to raise any money again and Sam [Altman] knows that.\u201d<\/p>\n Resolution of those issues will inform what percentage of OpenAI\u2019s equity Microsoft ultimately receives following OpenAI\u2019s restructuring.\u00a0<\/p>\n The Big Tech company is expected to hold 30-35 per cent of OpenAI, in which it has invested more than $13bn to date, but that figure could change, according to the people with knowledge of the talks.\u00a0<\/p>\n A deal remains the likeliest outcome, they added, but negotiations are likely to drag to the end of year fundraising deadline or beyond.\u00a0<\/p>\n In a joint statement, OpenAI and Microsoft said: \u201cWe have a long-term, productive partnership that has delivered amazing AI tools for everyone. Talks are ongoing and we are optimistic we will continue to build together for years to come.\u201d<\/p>\n Other hurdles must also be cleared before the company can restructure. Even with a swifter resolution of its contract with Microsoft, discussions with other shareholders and the attorneys-general in California and Delaware \u2014 where OpenAI operates and is incorporated \u2014 could well extend into next year, these people added.<\/p>\n Discussions are being led by the two companies\u2019 chief financial officers, OpenAI\u2019s Sarah Friar and Microsoft\u2019s Amy Hood, according to those with knowledge of the talks. A deal would allow OpenAI\u2019s investors to hold equity in the business, rather than the profit-sharing arrangement which exists today.\u00a0<\/p>\n OpenAI\u2019s last two funding rounds \u2014 one last October at a $157bn valuation and another launched in March and led by SoftBank at a $300bn valuation \u2014 included terms that would allow its backers to claw back or withhold some of their investment if the start-up fails to convert within a set timeframe. For SoftBank, that deadline is the end of 2025.\u00a0<\/p>\n OpenAI executives are confident the Japanese group will not withdraw investment if talks stall and believe they can continue raising capital even with their existing structure, thanks to the company\u2019s rapid growth since SoftBank initially committed to lead a $40bn funding round in March. <\/p>\n OpenAI is currently talking to investors about a secondary share sale that would value it at $500bn, which would in effect mark up SoftBank\u2019s investment by two-thirds. It has also received interest from investors willing to invest in a \u201cprimary\u201d fundraising at an even higher valuation, according to people familiar with the matter. <\/p>\n Despite the lack of clarity about OpenAI\u2019s future, the company\u2019s $8.3bn March funding round<\/a> earlier this month \u2014 which formed one tranche of the SoftBank-led round \u2014 was many times oversubscribed, according to people with knowledge of the matter.<\/p>\n