OpenAI Gives Up On For-Profit Conversion
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Today on the AI Daily Brief, OpenAI backs off its plans for a for-profit conversion. And before that are the headlines. The company also appears to have reached an agreement to buy AI coding platform Windsurf for around $3 billion. The AI Daily Brief is a daily podcast and video about the most important news and discussions in AI. Today's episode is brought to you by Blitzy and Super Intelligent. To get an ad-free version of the show, go to patreon.com slash AI Daily Brief.

Welcome back to the AI Daily Brief Headlines Edition, all the daily AI news you need in around five minutes. According to Bloomberg sources, an agreement has been reached for OpenAI to buy Windsurf for about $3 billion. Now, this is a story we've been following for a while. Last month, it was reported that OpenAI was looking to acquire a coding agent platform. They had apparently tried to buy Cursor a bunch of times before settling on Windsurf instead.

While Bloomberg said that the deal is not formally closed, sourcing was clear that an agreement had been reached. Windsurf's latest valuation from their last round back in August was $1.25 billion, and they had apparently been in talks with Kleiner Perkins and General Catalyst to raise a new round of funding at a $3 billion valuation. Assuming this goes through, it will be OpenAI's largest acquisition to date, and shows if nothing else the significance of coding as a use case for AI.

The company has, of course, been working on their own coding assistant, releasing an open source version last month. However, it's also seemed like they have their sights set on something much bigger, with reporting indicating that they wanted to launch a fully automated coding agent that can justify a significant price point in the tens of thousands per month in the future.

Now, online, there is lots of speculation around why OpenAI would make this move. Some think it's about Windsurf's rapidly growing 600,000 monthly active users. Daily.dev CEO Nimrod Kramer writes, OpenAI buying Windsurf isn't about IDEs and definitely not about AI. It's about owning the developer.

Windsurf figured out something most AI infra companies haven't. Distribution beats anything. They built a dev-facing product that's actually used across a thousand companies and millions of engineers. That makes them valuable not because of their tech, but because of attention. In 2025, that's the new currency. This move fits a bigger pattern we're seeing. Foundational AI companies racing to capture the last mile.

They've realized that whoever owns the developer's workflow owns the future of software. For devs, this means two things. One, expect the tools you use to be increasingly shaped by whoever owns the underlying model. Two, expect fewer choices, not more, especially when products consolidate under one provider. That's the bet OpenAI is making. They didn't just acquire a product, they acquired a distribution channel, a data flywheel, and a wedge into dev teams who've been leaning towards Claude or Cursor.

Now, speaking of that, the other big line of conversation is people thinking that the battle between Cursor and Windsurf looks a lot different if because of this acquisition, Windsurf users only have access to OpenAI's models. Developer Nick Dobos writes, Cursor versus Windsurf becomes a much different conversation if Windsurf can't use Claude or Gemini. NearSD writes, I don't get it. Doesn't this kill Windsurf? Cursor's biggest USP is that you can switch to the latest, greatest model.

Now, it's not a guarantee that that's how OpenAI is going to play this, especially given that we've seen them make moves recently that suggest they're willing to play ball with where the community is, specifically in supporting MCP. Still, given that we haven't even gotten a confirmed deal, details will have to wait just a little bit. Speaking of Cursor, however, any sphere of the company behind Cursor have reportedly raised $900 million at a $9 billion valuation, led by Thrive Capital with participation from Andreessen Horowitz and Accel.

This is a jump from their last round of funding, which came in January at a $2.5 billion valuation. Now, it certainly seems like capital requirements have increased. The previous round only raised $105 million, marking a huge jump up this time.

At this point, AnySphere is one of the fastest-growing software companies in history. The Financial Times reports the startup grew annual recurring revenue to $200 million in April, with numerous others suggesting that that number is already up to $300 million. Last time we checked in on Wells' source figures, ARR was running at a $48 million pace in October. Coding assistants were already one of the big winners in AI Venture, but this round cements that the numbers are there to back up the hype.

Lastly today, staying on market and investment themes, Goldman Sachs says to buy the dip on AI stocks. The deep-seek jitters are gone and fear of infrastructure overbuilding are melting away as investment bank analysts look to the dip in big tech as a buying opportunity. A recent research note stated, "'It's fair to say there's a lot of pessimism in this theme. We consider this an opportunity to buy the dip.'" As for some justification, big tech recently completed their earning cycle with each company reporting strong growth in their AI-related business lines.

Microsoft did confirm that they're pulling back slightly on data center spending, but clarified that this is more about preparing for a glut in a few years' time than it is about the current conditions. Everyone else is doubling down on CapEx even as tariffs increase the cost of construction.

Goldman Sachs analysts wrote, all AI themes are cheaper than they were at the beginning of this year as well as last year. Looking at long-term earnings growth, the different baskets look cheaper to previous AI years, closer to pre-ChatGPT levels. Looking at our broad AI basket's performance relative to its earnings, the group continues to be cheap while earnings prove to be steady. Compare this to the bank's analysis from around a year ago when they published a report titled, Gen AI, Too Much Spend, Too Little Benefit?

I spent the whole summer swatting that one down. Might I be able to actually focus on the technology this summer instead? We'll have to wait and see, but for now, that is going to do it for today's AI Daily Brief Headlines Edition. Next up, the main episode. Today's episode is brought to you by Blitzy, the enterprise autonomous software development platform with infinite code context.

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Welcome back to the AI Daily Brief. Today we have the latest in the saga of OpenAI control. And I think before we dive in, it's worth noting just quickly why I think it's worth paying attention to this stuff, even though it sometimes takes on a soap opera feel, particularly based on the big egos of the actors involved. The short of it is, OpenAI is one of a very small handful of companies with an extremely outsized impact on the shape of the future of artificial intelligence, which by proxy means the shape of the future in general.

Part of the reason, as we'll discuss today, that there is so much wrangling around the legal and operational structure of OpenAI is that the different approaches have very different implications for rights, responsibilities, and so much more. I will, of course, continue to try to avoid the melodramatic parts of the story and just focus on the parts that are relevant to most of us.

But in any case, the TLDR is that OpenAI is walking away from plans to convert to a for-profit company. The company will still convert their for-profit subsidiary into a public benefit company, but the nonprofit will continue to oversee and control the operating company as a large shareholder.

Now, before we get into what OpenAI wrote about the announcement this week, let's go back to where they discussed their intention to shift structure last December. On December 27th, the company published a blog post called Why OpenAI Structure Must Evolve to Advance Our Mission. That piece began, OpenAI's board of directors is evaluating our corporate structure in order to best support the mission of ensuring AGI benefits all of humanity with three objectives. One, choose a nonprofit and for-profit structure that is best for the long-term success of the mission.

From there, they got into the past of the company, citing the original reason for moving beyond a simple nonprofit structure. They wrote that as they learned more about their mission, quote,

Eventually, it became clear that the most advanced AI would continuously use more and more compute, and that scaling LLMs was a promising path to AGI rooted in an understanding of humanity. We would need far more compute and therefore far more capital than we could obtain with donations in order to pursue our mission. That led in 2019 to them, quote, becoming more than a lab, we also became a startup. They estimated at the time that they'd have to raise on the order of $10 billion to build AGI. To do that, quote,

We created a bespoke structure, a for-profit controlled by the nonprofit with a capped profit share for investors and employees. We intended to make significant profits to pay back shareholders and have the remainder flow to the nonprofit. In 2019, they raised $100 million, followed by a billion from Microsoft, and they were, of course, off to the races.

That brings us up to the present. They wrote, as we enter 2025, we will have to become more than a lab and a startup. We have to become an enduring company. And so that led them to these steps. They wrote, our plan is to transform our existing for-profit into a Delaware public benefit corporation with ordinary shares of stock and the OpenAI mission as its public benefit interest. Second, they wanted to give the nonprofit shares in that PBC, quote, multiplying the resources that our donors gave many fold.

And three and finally, they wanted to separate the two. Quote, So very clearly the intention for the nonprofit in this future vision was to do non-profit-y things, not run the for-profit.

This raised some ire, most notably, of course, with Elon Musk. In early February, Musk offered to buy OpenAI for $97.4 billion. In a statement from Musk's lawyer, he said, It's time for OpenAI to return to the open-source, safety-focused force for good it once was. We will make sure that happens. Now, of course, Sam Altman and OpenAI bit back. On Twitter slash X, Altman wrote, No thank you, but we will buy Twitter for $9.74 billion if you want.

And Altman also wrote on a Slack message to his team, our structure ensures that no one individual can take control of OpenAI. These are tactics to try and weaken us because we're making great progress. But although it might have been a stunt, the message from Musk's camp was loud and for some, resonant. Musk lawyer Mark Toboroff said, if Sam Altman and the present OpenAI board of directors are intent on becoming a fully for-profit corporation, it's vital that the charity be fairly compensated for what its leadership is taking away from it.

control over the most transformative technology of our time. The war of words and actions continued to ratchet up. On March 14th, OpenAI published another blog post starting to explicitly name Elon as an antagonist. This post was called, The Court Rejects Elon's Latest Attempt to Slow OpenAI Down. They wrote, This lawsuit has always been about what's good for Elon and his own for-profit AI company. The truth is he wanted to merge a for-profit OpenAI into Tesla as his own emails show.

We turned him down and he left because he couldn't seize control. When he later saw the progress we'd made without him, Elon began resorting to baseless lawsuits while still trying to copy our playbook to develop competing models with his own for-profit multi-billion dollar company. Last week, the court rejected Elon's request for a preliminary injunction, finding that he hadn't demonstrated likelihood of success of the merits of his claim. In fact, the court went further, dismissing several of his claims from the case entirely.

They continue,

On May 1st, Bloomberg wrote, a judge narrowed claims in Elon Musk's lawsuit alleging that OpenAI broke its promise to function as a public charity by making plans to transform itself into a for-profit business. A U.S. district judge ruled that Musk can pursue fraud claims in the complaint he filed against OpenAI and also declined to dismiss an unjust enrichment claim against OpenAI and Microsoft. The judge did, however, throw out claims of false advertising and breach of fiduciary claims.

Effectively a mixed bag, but kind of for OpenAI, any bag that wasn't just an outright dismissal of everything was sort of a bad bag.

And that brings us up to the news today. In a blog post explaining OpenAI's change in direction, board chairman Brett Taylor wrote, We made the decision for the nonprofit to retain control of OpenAI after hearing from civic leaders and engaging in constructive dialogue with the offices of the Attorney General of Delaware and the Attorney General of California. We thank both offices and we look forward to continuing these important conversations to make sure OpenAI can continue to effectively pursue its mission of ensuring AGI benefits all of humanity.

Sam appended an open letter to the staff, which read, He then talks about how much people are using ChatGPT and for what.

But continues,

He then reiterates that they've decided for the nonprofit to stay in control. OpenAI, he writes, was founded as a nonprofit, is today a nonprofit that oversees and controls the for-profit, and going forward will remain a nonprofit that oversees and controls the for-profit.

The biggest change then is one, the plan to make the change, and two, the structure of the for-profit LLC that sits under the nonprofit. The transition to a public benefit corporation will go forward. Altman writes, instead of our current complex capped profit structure, which made sense when it looked like there might be one dominant AGI effort, but doesn't in a world of many great AGI companies, we're moving to a normal capital structure where everyone has stock. This is not a sale, but a change of structure to something similar.

An OpenAI spokesperson confirmed that investors will own regular stock with no capped upside, also confirming that the goal was to make it easier to raise money in the future. The Office of the Attorney Generals were a little unclear on where they land with the new structure. The press office simply wrote, The California Department of Justice is reviewing the new proposed plan. This remains an ongoing matter, and we are in continued conversations with OpenAI.

Now, in terms of interpretation, people are still kind of just wrapping their heads around this. But the information suggested that this is a hollow victory for Elon Musk and that it may lead to Sam Altman winning the war. They wrote, Musk might have thought that by blocking OpenAI's restructuring, he could hobble its efforts to raise money and make it easier for his own startup, XAI, to take the lead in the field. But today's decision shouldn't hamstring OpenAI's fundraising.

An IPO should be easily doable once OpenAI distributes regular shares in the for-profit business to its investors, replacing the rights they now have to future profits. All investors surely care about is OpenAI's market lead, which seems undiminished at least right now.

Importantly, the information piece pointed out that investors not having control over the company is nothing new in Silicon Valley. Both Meta and Google have dual-class shares that give the founders the deciding vote in all important decision-making. That structure obviously doesn't seem to have dissuaded investors, with each of those companies growing into one of the largest in the world. Will this stop Elon Musk? Probably not. Hours before the announcement, Musk's lawyers said that they plan to go ahead with the lawsuit despite this statement.

Maybe the biggest overhang from this is OpenAI's investors in the state of recent fundraising. The last two rounds of fundraising were contingent on OpenAI converting to a for-profit. SoftBank has the right to walk away from $10 billion pledged in April, and investors led by Microsoft have the right to claw back $6.6 billion raised last October if the conversion doesn't go through. Now, this new structure would remove the profit cap on shares, so perhaps that's good enough for the group of investors.

Axios editor Dan Primack writes, Today's OpenAI non-profit for-profit news may give some investors a chance to ask for their money back, but I'm not hearing there's any interest in making such an ask.

Still, it does appear that when it comes to this plan, Microsoft isn't satisfied. In a piece titled Microsoft is Key Holdout for OpenAI Restructuring Plan, they write, The software giant wants to make sure that any changes to OpenAI's structure adequately protect Microsoft's investment. Microsoft is still actively negotiating details of OpenAI's proposal. Microsoft has funded OpenAI to the tune of $13.75 billion, but their funding came at a much lower valuation, meaning any sort of buyout could stretch OpenAI's finances.

The deal was also structured with a revenue share baked in, as a significant sum of the funding came long before the conversion was contemplated.

We don't know exactly how much OpenAI owes Microsoft at the current moment, but in October, the Wall Street Journal reported on the structure of the deal, with Bloomberg's Matt Levine expanding on the reporting, adding that the end state of the revenue-sharing agreement was that Microsoft has a claim on 49% of profits up to a certain limit. He didn't know where that limit was, but said that 10x seemed plausible, making the Microsoft stake worth up to $137.5 billion.

Bloomberg sources claim that only OpenAI, Insiders, Microsoft, and a handful of other early investors have a say on approving the deal. Microsoft are reportedly looking to rewrite the revenue sharing agreement and negotiate their equity stake alongside other issues.

So where does this all land? Ultimately, it seems like OpenAI decided that they were fighting a losing battle, and or the California Attorney General's office stepped in to tell them they just didn't have a chance at approval. Functionally, it appears that the most important part of the conversion is still in place, uncapping profits for new investors. But Microsoft remains a sticking point. The AGI's approval is not guaranteed. And like we discussed, Elon seems hellbent on taking them to court.

And so for now, the saga continues. However, for us, that is where we will close today. Appreciate you listening or watching as always. And until next time, peace.