OpenAI Valued at $80B, Ex-Staff Question Share Control

Key Takeaway

• OpenAI, valued at over $80 billion, plans annual secondary stock sales but faces employee concerns over restrictive equity control.
• Legal and regulatory challenges loom for OpenAI, including potential antitrust investigations by the FTC and Justice Department.
• The company recently reversed a controversial policy requiring ex-employees to sign non-disparagement agreements to retain vested equity.

OpenAI's Equity Liquidity Plan

OpenAI, valued at over $80 billion, plans to allow stakeholders to sell a portion of their shares annually. However, the company’s restrictive approach has raised concerns among current and former employees about who gets to participate. With no IPO in sight and the company being too expensive for acquisition, secondary stock sales are the only way for shareholders to realize value from their equity in the near term.

Concerns have intensified following reports that OpenAI could claw back vested equity. To address these concerns, OpenAI circulated a document titled “Overview and Recap of OpenAI’s Tender Process,” detailing past and future equity purchase plans. The company aims to hold one tender offer annually, depending on market conditions. This issue has become a major topic of conversation within OpenAI and among former employees, as evidenced by internal documents, Slack messages, and exit agreements viewed by CNBC.

Employee Concerns and Company Response

Current and former employees have expressed concerns about access to liquidity and the company’s control over their equity. OpenAI has used aggressive tactics to get employees to sign exit agreements affecting their stock holdings. For instance, employees must sign exit documents, including a General Release, to participate in future tender events or liquidity opportunities.

Last month, OpenAI backtracked on a controversial decision requiring former employees to choose between signing a non-disparagement agreement and keeping their vested equity. An internal memo addressed to former employees stated, “You may have been informed that you were required to execute a general release agreement that included a non-disparagement provision in order to retain the Vested Units [of equity].” An OpenAI spokesperson told CNBC, “We’re incredibly sorry that we’re only changing this language now. It doesn’t reflect our values or the company we want to be.”

Legal and Regulatory Challenges

OpenAI faces potential legal challenges and regulatory scrutiny. The Federal Trade Commission and the Justice Department are set to open antitrust investigations into Microsoft, OpenAI, and Nvidia, examining their influence on the AI industry. Additionally, OpenAI disbanded its team focused on the long-term risks of AI, just a year after forming the group. This move came shortly after co-founder Ilya Sutskever and Jan Leike announced their departures, with Leike stating that OpenAI’s “safety culture and processes have taken a backseat to shiny products.”

Legal experts have raised concerns about OpenAI’s treatment of ex-employees who leave to work at competitors. In April, the FTC voted to ban non-compete agreements for for-profit companies, with a final rule going into effect in September. This ban protects workers from punishment for accepting another role and covers any agreement that “penalizes a worker” or “functions to prevent” a worker from working at a competitor. An attorney noted that OpenAI’s behavior towards ex-employees leaves a “plausible argument” for future litigation tied to the non-compete issue.

Street Views

• Larry Albukerk, EB Exchange (Neutral on OpenAI's equity handling):

  "Ultimately, employees are going to become ex-employees. You’re sending a signal that, the second you leave, you’re not on our team, and we’re going to treat you like you’re on the other team. You want people to root for you even after they leave."