Microsoft and OpenAI are negotiating the former's equity stake as OpenAI moves to become a for-profit company.
As reported by the Wall Street Journal (WSJ), the companies are currently trying to decide how much Microsoft owns after its significant investments in the startup.
OpenAI is currently transitioning from a nonprofit to a for-profit corporation, having recently closed a funding round that valued the company at $157 billion.
Since 2019, Microsoft has invested nearly $14 billion in OpenAI, making it the company's largest investor. Those investments were made when the company was worth significantly less than it is now.
Currently, Microsoft - along with the other investors - is entitled to a share of future profits from the for-profit subsidiary controlled by OpenAI's board. Those returns are capped.
In addition to how much equity Microsoft will receive, the companies are also deciding what Microsoft's governance rights might be.
Both have hired investment banks to advise them throughout the process - Microsoft is working with Morgan Stanley, and OpenAI with Goldman Sachs. OpenAI is also being advised by Michael Klein, a former Citigroup banker.
According to WSJ, negotiations are complicated by the fact that, should Microsoft's stake be significant, it might draw investigation from antitrust regulators.
The US Federal Trade Commission (FTC) already announced it would be conducting an antitrust investigation into Microsoft, OpenAI, and Nvidia in June 2024. That investigation is centered around the companies' influence on the artificial intelligence (AI) industry, however, and is not looking at mergers and acquisitions.
January 2024 saw the launch of another FTC investigation into the AI industry including Amazon, Alphabet, Microsoft, Anthropic, and OpenAI, focusing on the investments and partnerships being formed.
Microsoft is currently OpenAI's exclusive cloud provider, and the cloud giant uses OpenAI for its Copilot AI application.
OpenAI announced earlier this month that it was looking to other data center providers besides Microsoft. In June it was reported that the company signed a deal to take up compute capacity at an Oracle data center in Abilene, Texas, being developed by Crusoe. This has reportedly since expanded to rent the entire facility, which could grow to 2GW of compute capacity.
While negotiations remain ongoing, OpenAI has two years to switch to a for-profit corporation, or investors in the latest round will be able to ask for a refund.
The company claims that it will remain a "public benefit corporation," and will work for social good including with profits, and in a sustainable manner. CEO Sam Altman is set to receive equity in the company, though the amount has yet to be decided.
