OpenAI's Corporate Restructuring Faces Delays Due to Microsoft Talks

OpenAI's corporate restructuring is likely to slip into next year as the ChatGPT maker negotiates key terms of its future relationship with Microsoft, complicating plans to raise billions of dollars more in funding.

The $300 billion artificial intelligence startup 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.

A deal would allow OpenAI to complete plans for a restructure, enabling investors to hold equity in the business and unlocking a future initial public offering. However, multiple sources indicate that disagreements on key issues could push negotiations beyond December 31.

Failure to reach an agreement by that date could allow SoftBank to withhold its $10 billion commitment to the company, according to investment terms, and hamper OpenAI's efforts to raise more capital.

Key Negotiation Points with Microsoft

Several outstanding issues need resolution:

• Microsoft's access to OpenAI's API: Microsoft has exclusive rights to host OpenAI's models on its Azure cloud service, acting as a critical gatekeeper. OpenAI is pushing for additional partnerships with Google and Amazon Web Services, similar to rival Anthropic, to boost API sales revenues, which currently account for about a quarter of its $12 billion annual recurring revenue. Negotiations include a potential narrow agreement for serving government customers not on Azure.

• Intellectual property access: The companies are debating Microsoft's future access to OpenAI's IP, including whether Microsoft will see how future models are trained or merely use them in products.

• AGI clause: A contentious point is the "artificial general intelligence" clause, which allows OpenAI to cut Microsoft's IP access if AGI is achieved. Microsoft's Satya Nadella wants to remove this clause, while OpenAI aims to retain it for leverage.

Resolution of these issues will determine Microsoft's equity stake in OpenAI post-restructure, expected to be between 30-35%, but subject to change.

Additional Hurdles and Future Prospects

Even with a swift resolution, discussions with other shareholders and attorneys-general in California and Delaware could extend into next year. Talks are led by CFOs Sarah Friar of OpenAI and Amy Hood of Microsoft.

OpenAI's recent funding rounds include provisions for clawbacks if restructuring doesn't occur by set deadlines, such as end of 2025 for SoftBank. Despite uncertainties, OpenAI is confident in continued capital raising, with discussions for a secondary share sale at a $500 billion valuation and interest in primary fundraising at higher valuations.

The company's rapid growth and strong investor interest, evidenced by oversubscription in recent rounds, suggest optimism for future deals.