Sam Altman’s Equity Dilemma at OpenAI
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Welcome to the AI Chat Podcast. I'm your host, Jaden Schaefer. Today on the podcast, we're talking about the fact that Sam Altman, who famously told Congress he never owned any equity, might actually have owned some equity in OpenAI. In addition to that, a whole bunch of drama in converting them from a non-profit to a for-profit, some lawsuits recently launched against them, and some letters that Meta has sent to AI.

government over in California, kind of trying to get in the way of this move by OpenAI. There's a lot of drama, a lot of interesting things to unpack here. Before we get into it, I wanted to say if you've ever wanted to start an online side hustle or grow and scale your current business using AI tools, I would love to have you as a member of the AI Hustle School community. Every single week, me and my co-host Jamie, we create an exclusive piece of content over there.

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So a lot of the really interesting stuff happening here really stems from the fact that, you know, in my opinion, if Sam Altman was just like, yo, look, I have an AI company. I'm making money like everybody else. There'd be no controversy here. The controversy with OpenAI is really how they got started as a nonprofit. They raised hundreds of millions of dollars. And I didn't realize just how big of a valuation they had back in those early days. So recently, I've

Of course, Sam Altman, back in 2023, he went to Congress and he testified to Congress saying that he owned no equity in OpenAI. He told them that he was doing this because he loved it, that there was nothing that he really got out of it. And I'll play a little clip from him saying just that. Okay.

You make a lot of money, do you? No. I'm paid enough for health insurance. I have no equity in OpenAI. Really? That's interesting. You need a lawyer. I need a what? You need a lawyer or an agent. I'm doing this because I love it.

Okay, so Sam Altman says he's doing this because he loves it. That's the only reason that he's doing this. Some people were skeptical back then, and it turns out it wasn't actually quite true because he recently did an interview with Barry Weiss where he said that he actually did have some

equity in OpenAI through a Sequoia fund at one point. He said that he's since sold this stake, but there might actually be even more equity that he owns through other ways. So to me, this is very, very interesting, kind of what's going on here, just for the fact that

I feel like all the time I'll see these tech executives go and kind of testify before Congress about different things. And sometimes they say the most shocking things like, Oh, I have no equity in this company I'm working on. And, and then come to find out later they do, for example. And I feel like nothing ever happens to them. I think the TikTok CEO went to Congress and allegedly lied to them about some of the Chinese ties. Uh,

I just feel like this is happening. Marcus Zuckerberg, a lot of people say, has done the same thing. So anyways, I just feel like there's not a ton of accountability. And I also feel like there's nothing wrong with having equity, but the way he started this company...

definitely makes it seem like there's some suspicious here. So here's what he specifically said. He said, I have a tiny sliver of equity from an old YC fund. I used to have some via Sequoia fund, but that one turned out to be easier to sell and not keep the position. And so I have a very small amount that's quite insignificant to me in terms of what I will or won't have going forward. I don't know. There's no current plan or promise for me to get anything. Okay.

So this breaks it all down. He had some of the Sequoia fund. He sold that allegedly. He said he has a sliver of equity from an old YC fund. And that one, he said, you know, wasn't as easy as the Sequoia one to sell, aka he still has some equity from the YC fund. So, I mean, I'm not trying to nitpick and be like, oh, I don't know. Like, there's nothing wrong with having equity, but this should have been disclosed a long time ago. How come this is just being disclosed in a, you know, a brand new podcast? Uh,

with Barry Weiss this week when this is something that's been going on for forever. He's had this forever and he went to Congress and never testified. So to me, that's the only shady thing about this. Like, how did this news come out? Maybe he's worried other people would realize and he was trying to front run it. I don't know. In any case, what's really interesting here is that they posted this on their own website that he had this kind of indirect investment in Y Combinator. So

they have a little bit of that published and I'm not exactly sure when this went live or when people exactly found out about this, but there is a bit of a chart that they kind of have outlined and some of this stuff is a little bit public. So that's very interesting. Okay, so how much was this actually worth? How much was the stake actually worth in this? Did it actually go up? Is this even significant?

No one will actually tell us exactly how much money it's worth. Sequoia first invested in OpenAI back in 2021, and that's according to its website. And this is two years after Sam Altman essentially became the CEO, meaning when

When they made this initial investment, Sequoia, into OpenAI, OpenAI's valuation was $14 billion. Now, today, it's obviously grown significantly. Today, OpenAI's valuation, according to TechCrunch and according to the latest research,

latest rounds of funding that they've done is that it is at $150 billion. This is the latest funding round. They just did it this year. They raised $6.6 billion raised. And so now it's valued at $157 billion. So essentially what that means from the $14 billion when Sequoia got in is that they are up 10x from this original point that he got in. How much did he put in?

How much is it worth? I don't know. All of that's kind of convoluted, but it's like, regardless of all of that, he's made 10 X on his money. So some people might say isn't that much since, uh, I don't know, 2021, but that's only three years ago. So anyways, it's very interesting. So obviously this has grown a lot, but because of the way Sequoia works, it's very difficult. You know, they, they're not required to disclose their limited partners. So it's very unclear how much, uh,

Altman actually sold his stake for, how much money he made from this. Even if he went to Congress and said he has no equity, he sold his equity. So he has made money from it one way or another. And he obviously had the hopes of making more money because he's, as they're converting this to a non, a for-profit, a lot of people are saying he's going to get equity in that. And they're sort of denying it, but something really telling is what he said in his interview with Barry Weiss. He said,

Um, in terms of what I will or won't have going forward, I don't know. There's no current plans or promises for me, for me to get anything.

I don't know is a lot different than I'm not going to ever take any equity like I've been saying to everyone forever. There's no current plan. I mean, I can imagine them commercial for profit in a year or two. They give them a package. So there's no current plan, but he's definitely not really not getting equity in this in the future. And again, nothing wrong with that. It's just, you know, a lot of people are rubs in the wrong way because of the way this company started. So.

What is really interesting is exactly what an OpenAI spokesperson recently said about this. They said,

Could theoretically be, you know, whatever. They just, he had some money in a fund and they ended up go, you know, investing in opening. I find it hard to believe since he'd been CEO for two years that he didn't know, actually impossible to believe. He didn't know that Sequoia was investing and he had money in Sequoia, but whatever. Uh, I, I,

It's just, I don't know, it's just interesting when it says like, which he later learned included minimal exposure to open AI. Like, how could he not know? He was the CEO for two years before they made the investment. And you know all your investors, trust me, as a guy working in tech, making startups, raising money, you know your investors, you know who's putting money in. So, yeah.

In any case, most CEOs do have equities in the companies they run. This is very normal. This is usually a huge chunk of CEO pay. Look at Elon Musk. He makes a massive percentage of his salary. It isn't even a salary. He doesn't take a salary. He just takes equity in the company and tries to grow it. This is normal, and I actually like this. That being said, it just rubs people the wrong way because of how this company started. Okay.

Again, because OpenAI was founded as a nonprofit, it had a very strange structure. Sam Altman has repeatedly said he doesn't own any. And just a month ago, he also said that he had no equity in OpenAI during the New York Times Book Deal Summit. So again, just a month ago saying he had no equity in this thing. And he does technically have a sliver of equity from YC. So he does have some equity. I guess he's saying it's a negligible amount, but it does exist. Okay. Yeah.

Also on the All In podcast back in May, he said sort of the same thing. So in any case, what is increasingly making this relevant is the fact that Opening Eye is becoming, you know, is working on transitioning to a for-profit company, which is going to be controlled by a nonprofit board. And it's essentially going to be an independent company. They're also contemplating giving him some equity. Everyone at Opening Eye and some of them have denied that, but

This is some of the leaks that we were seeing. This is all though at risk. Elon Musk is currently suing OpenAI in their transition to a for-profit company because he said, hey, I invested and gave you hundreds of millions of dollars when this was a nonprofit. Now you're transitioning. What's really interesting though is allegedly OpenAI made an alleged claim recently saying that Elon Musk actually wanted to convert

to a for-profit himself and because he didn't get to do it now, he's mad about it. So that's also an interesting claim. Another interesting part or thing that has recently happened, Sam Altman, when he was talking to Barry Weiss, he essentially said Elon Musk is a bully who clearly likes to get into fights. And in addition to this, Meta recently sent a letter to California's attorney general asking to block opening eyes, transition to a for-profit company.

company. And they actually, I read the letter and it was quite compelling, but he had an interesting statement on this where he said, I don't know why Meta sent that letter. I do know that, I do know they know that's not how it works. I know that part is in bad faith. You can imagine lots of other reasons that Meta might have sent this letter. You can imagine they want to curry favor with Elon. You can imagine that they felt like it would help them compete with us. So you

Evidently, there is a lot of fighting, it feels like, a lot of palace intrigue that's going on right now in regards to them just essentially trying to get this done, convert to a for-profit, maybe make some money, maybe make no money. There's a lot that's, you know, there's a lot kind of going on in this. I want to read you the exact letter that Metis sent because I think that it's quite interesting.

They said, dear General Bonita, as a California company that builds generative AI technology meta platforms is deeply concerned about OpenAI's attempt to shed the nonprofit status under which it was founded in order to establish a for-profit entity. We urge you to review this proposed transaction, including the nature and timing of any future assets for OpenAI's nonprofit entity to other entities.

Failing to hold OpenAI accountable for its choices to form as a nonprofit could lead to a proliferation of similar startup ventures that are notionally charitable until they are potentially profitable. The people of California have a direct and urgent interest in stopping this behavior. All for-profit activities of OpenAI and its

related entities should be paused to protect investors and consumers alike. In 2015, opening, I filed its original certification of incorporation with the state of Delaware, which reads this corporation shall be a nonprofit corporate corporation organized exclusively for charitable and or educational purposes.

So, you can, I don't know, there's all sorts of arguments that are being made here. You can be for or against any of this stuff. But at the end of the day, opening eye filed and said they were going to exclusively be for charitable and educational. People got hundreds of millions of dollars in tax write-offs under that pretense. And changing it now does seem like it shouldn't be possible. It's what it actually seems like. That being said...

This is going to the courts. Elon Musk is suing. It's going to be interesting to see where all of this goes, and I'll keep you up to date on all of it. So if you enjoyed the podcast today, if you wouldn't mind leaving me a review, wherever you get your podcasts, liking this on YouTube, there's a link in the description to the YouTube channel.