Microsoft is reportedly in a tussle with OpenAI over the size of the stake it will take from the artificial intelligence juggernaut as the latter prepares to transform from a non-profit to a for-profit company.
Both firms have turned to investment banks for advice in the high-stakes negotiations, as Microsoft seeks a large amount of equity in OpenAI in return for the $14 billion in cash it has injected into the company so far, according to the Wall Street Journal .
Microsoft, led by CEO Satya Nadella, has hired Morgan Stanley, the newspaper reported, citing unnamed sources close to the situation.
OpenAI — headed by 39-year-old tech mogul Sam Altman — has meanwhile hired Goldman Sachs, the sources said.
Microsoft is OpenAI’s largest investor and began its massive cash infusions in 2019.
The company was a participant in a recently closed $6.6 billion fundraising round that valued OpenAI at $157 billion — though it is expected to lose $5 billion this year.
In addition to the size of Microsoft’s capital, the companies are expected to negotiate the extent of its governance rights, the report said.
The Post has reached out to Microsoft and OpenAI for comment.
OpenAI’s board is planning to restructure itself as a for-profit corporation in which company executives weigh social impact and profit when making decisions, according to multiple reports.
The non-profit entity that has governed OpenAI since 2015 will continue to exist and hold a stake in the for-profit entity, but will no longer be at the helm.
The nonprofit OpenAI’s board briefly ousted Altman as CEO last fall, only to see him retake the helm after Nadella and other key investors stepped in.
The fight over equity rights is playing out amid signs of behind-the-scenes tension between Microsoft and OpenAI, according to a separate report.
Altman and his allies were upset with Microsoft’s decision to hire AI pioneer Mustafa Suleyman, the New York Times reported.
Suleyman is the head of Microsoft’s consumer artificial intelligence unit and reports directly to Nadella.
Suleyman co-founded the Google-owned research lab DeepMind and later ran the startup Inflection AI. Most of the latter’s staff followed Suleimani to Microsoft.
According to the Times, some OpenAI employees were embarrassed after a recent incident in which Suleyman reportedly criticized the startup for not delivering new AI technology to Microsoft colleagues as quickly as he thought it should.
Others at Altman’s firm were said to be frustrated that Microsoft engineers had bypassed mutually agreed upon protocols when downloading the OpenAI software.
Meanwhile, OpenAI is said to have pushed Microsoft for more favorable terms as it seeks to secure more computing power to run its AI programs — and to allow it to seek resources outside the company.
Internal documents obtained by the Times suggest that OpenAI’s computing costs will rise to $37.5 billion a year by 2029.
Microsoft and other major investors in the latest fundraising round are said to have the right to renegotiate OpenAI’s valuation — or get their money back entirely — if the profitable move isn’t completed within two years.
Altman is also expected to take an equity stake in the for-profit entity — though he dismissed a Bloomberg report that he could take a 7% stake worth more than $10 billion, calling it “ridiculous.” .
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