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OpenAI shifts from nonprofit to ‘capped-profit’ to attract capital

Posted by on Mar 11, 2019 in Artificial Intelligence, Finance, OpenAI, sam altman, Science, TC, Venture Capital | 0 comments

OpenAI may not be quite so open going forward. The former nonprofit announced today that it is restructuring as a “capped-profit” company that cuts returns from investments past a certain point. But some worry that this move — or rather the way they made it — may result in making the innovative company no different from the other AI startups out there.

From now on, profits from any investment in the OpenAI LP (limited partnership, not limited profit) will be passed on to an overarching nonprofit company, which will disburse them as it sees fit. Profits in excess of a 100x return, that is.

In simplified terms, if you invested $10 million today, the profit cap will come into play only after that $10 million has generated $1 billion in returns. You can see why some people are concerned that this structure is “limited” in name only.

In a blog post, OpenAI explained the rationale behind its decision.

We’ll need to invest billions of dollars in upcoming years into large-scale cloud compute, attracting and retaining talented people, and building AI supercomputers.

We want to increase our ability to raise capital while still serving our mission, and no pre-existing legal structure we know of strikes the right balance. Our solution is to create OpenAI LP as a hybrid of a for-profit and nonprofit—which we are calling a “capped-profit” company.

Essentially, the company is admitting that it was unlikely to raise the money necessary to achieve its goals while operating as a nonprofit — which, as you can imagine, investors see no immediate returns on. (Although it’s possible to make money on spinoffs and other sub-businesses, putting money into a nonprofit isn’t really a lucrative move.)

Less money wouldn’t be as big a problem if OpenAI were not competing with the likes of Google and Amazon for specialists in artificial intelligence, cloud computing, and so on. The cost of development is also quite high.

This of course was also true (though perhaps less acute) in 2015 when OpenAI was started. Yet as the founders wrote then:

Our goal is to advance digital intelligence in the way that is most likely to benefit humanity as a whole, unconstrained by a need to generate financial return. Since our research is free from financial obligations, we can better focus on a positive human impact.

That doesn’t leave a lot of room for interpretation!

But having said that, OpenAI isn’t the first nonprofit to stumble on the money issue; the simple fact is that it’s hard to outspend global megacorps in a field where success is at least partly determined by budget. And in a way, perhaps they reasoned, isn’t being profitable sort of being “free from financial obligations?” Think about it.

The new structure has OpenAI LP doing the actual work the company is known for: doing interesting and perhaps widely applicable AI research, occasionally withheld in order to save the world.

But the LP will be “governed” by OpenAI Inc, AKA OpenAI Nonprofit (this structure is explained a bit more below). Profits emerging from the LP in excess of the 100x multiplier go to the nonprofit, which will use it to run educational programs and advocacy work.

The company justifies this rather high profit “cap” by saying that if it succeeds in creating a working artificial general intelligence (AGI is a poorly defined concept that is nonetheless perhaps the holy grail of current AI research), “we expect to generate orders of magnitude more value than we’d owe to people who invest in or work at OpenAI LP.”

OpenAI’s logo.

It’s a little like offering great terms on Martian real estate (buy now before it’s crowded!). Whether these are the words of confidence workers, or merely confident ones, is pretty much entirely a matter of opinion. AGI is nowhere near being achieved or the idea even properly understood, as any researcher will tell you, but if it can be achieved it is far more likely be done by people on the leading edge who have access to large budgets and enormous computing resources.

As chief scientist Ilya Sutskever put it in a Reddit comment moments ago: “There is no way of staying at the cutting edge of AI research, let alone building AGI, without us massively increasing our compute investment.” Whatever AGI is, it won’t come cheap.

All the same, the 100x number seems like rather a large jump. Many of the same goals might have been achieved with a 10x or 20x multiplier, which would allow for huge returns without near-term profits appearing to be unlimited in practice. Future rounds will in fact be offered at a smaller multiplier; this one is meant to be a carrot for investors willing to tolerate a bit more risk.

But it has rubbed some the wrong way, and it’s easy to understand grumbling that the company that not long ago said it wanted to be “unconstrained by a need to generate financial return” will now make decisions very much informed by that need. How does that differ from the megacorps with which OpenAI has attempted to contrast itself?

The CEO of the whole operation is Sam Altman, who stepped down as chairman at Y Combinator just days ago, leading speculation that he was upping his involvement in another concern; now we know which.

Policy director for OpenAI (though for which, who can say?) Jack Clark explained in a bit more detail in an email to TechCrunch.

“In practice, You should think about OpenAI as being led on research and technology by Ilya Sutskever (chief scientist) and Greg Brockman (CTO), with Sam helping out on other aspects of management,” he wrote. “We’ve all been working together for a while, so this isn’t much of a shift internally.”

The board consists of OpenAI’s Brockman, Sutskever, and Altman, original investor but non-employee Reid Hoffman, as well as Adam D’Angelo, Holden Karnofsky, Reid Hoffman, Sue Yoon, and Tasha McCauley. Notably Elon Musk isn’t a part of it, though he was a big investor and proponent early on; He departed more than a year back on good terms.

The board is limited to a minority of financially-interested parties, and only non-interested members can vote on “decisions where the interests of limited partners and OpenAI Nonprofit’s mission may conflict,” the announcement noted. So theoretically the keys to the safe are in the hands of those who have no incentive to rifle it. Clark noted that “we’ve been talking to everyone involved for more than a year about this, so everyone was aware.”

OpenAI LP, which we will likely end up just calling OpenAI, will continue its work uninterrupted, it says, even “at increased pace and scale.” So you can expect important papers and work like it has published before, though from now on you will be much more justified in attributing a profit motive to it.


Source: The Tech Crunch

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Y Combinator president Sam Altman is stepping down amid a series of changes at the accelerator

Posted by on Mar 8, 2019 in Accelerator, advisor, articles, Artificial Intelligence, chairman, chief executive officer, Co-founder, Michael Seibel, OpenAI, partner, paul graham, president, sam altman, San Francisco, Startups, Venture Capital, Y Combinator, yc | 0 comments

Sam Altman, the well-known president of the prolific Silicon Valley accelerator Y Combinator, is stepping down, the firm shared in a blog post on Friday.

Altman is transitioning into a chairman role with other YC partners stepping up to take on his day-to-day responsibilities, as first reported by Axios. Sources tell TechCrunch YC has no succession plans. YC’s core program is currently led by chief executive officer Michael Seibel, who joined the firm as a part-time partner in 2013 and assumed the top role in 2016.

The news comes amid a series of shake-ups at the accelerator, which is expected to demo its latest batch of 200-plus companies in San Francisco March 18 and 19. In Friday’s blog post, YC expands on some of those changes, including the firm’s decision to move it’s HQ to San Francisco, which TechCrunch reported earlier this week.

“We are considering moving YC to the city and are currently looking for space,” YC writes. “The center of gravity for new startups has clearly shifted over the past five years, and although we love our space in Mountain View, we are rethinking whether the logistical tradeoff is worth it, especially given how difficult the commute has become. We also want to be closer to our Bay Area alumni, who disproportionately live and work in San Francisco.”

In addition to moving it’s HQ up north, YC has greatly expanded the size of its cohorts — so much so that it’s next demo day will have two stages — and it’s writing larger checks to portfolio companies.

Altman, who joined YC as a partner in 2011 and was named president in 2014, will focus on other efforts, including OpenAI, a research organization in which he co-chairs. Altman was the second-ever YC president, succeeding YC co-founder Paul Graham in 2014. Graham is currently an advisor to YC.


Source: The Tech Crunch

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Startups Weekly: Even Gwyneth Paltrow had a hard time raising VC

Posted by on Feb 2, 2019 in Airbnb, alex wilhelm, Andreessen Horowitz, Bessemer Venture Partners, collibra, connie loizos, CrunchBase, Entertainment, felix capital, forerunner ventures, founders fund, Frederic Court, funding, Goldman Sachs, gwyneth paltrow, hitRECord, James Beriker, jeff clavier, Joseph Gordon-Levitt, lucas matney, maverick capital, Mike Maples, munchery, Partech, Pinterest, sam altman, Sapphire Ventures, Softbank, Startups, TechCrunch, upfront ventures, Venture Capital, wellington management, Y Combinator | 0 comments

I spent the week in Malibu attending Upfront Ventures’ annual Upfront Summit, which brings together the likes of Hollywood, Silicon Valley and Washington, DC’s elite for a two-day networking session of sorts. Cameron Diaz was there for some reason, and Natalie Portman made an appearance. Stacey Abrams had a powerful Q&A session with Lisa Borders, the president and CEO of Time’s Up. Of course, Gwyneth Paltrow was there to talk up Goop, her venture-funded commerce and content engine.

“I had no idea what I was getting into but I am so fulfilled and on fire from this job,” Paltrow said onstage at the summit… “It’s a very different life than I used to have but I feel very lucky that I made this leap.” Speaking with Frederic Court, the founder of Felix Capital, Paltrow shed light on her fundraising process.

“When I set out to raise my Series A, it was very difficult,” she said. “It’s great to be Gwyneth Paltrow when you’re raising money because people take the meeting, but then you get a lot more rejections than you would if they didn’t want to take a selfie … People, understandably, were dubious about [this business]. It becomes easier when you have a thriving business and your unit economics looks good.”

In other news…

The actor stopped by the summit to promote his startup, HitRecord . I talked to him about his $6.4 million round and grand plans for the artist-collaboration platform.

Backed by GV, Sequoia, Floodgate and more, Clover Health confirmed to TechCrunch this week that it’s brought in another round of capital led by Greenoaks. The $500 million round is a vote of confidence for the business, which has experienced its fair share of well-publicized hiccups. More on that here. Plus, Clutter, the startup that provides on-demand moving and storage services, is raising at least $200 million from SoftBank, sources tell TechCrunch. The round is a big deal for the LA tech ecosystem, which, aside from Snap and Bird, has birthed few venture-backed unicorns.

Pinterest, the nine-year-old visual search engine, has hired Goldman Sachs and JPMorgan Chase as lead underwriters for an IPO that’s planned for later this year. With $700 million in 2018 revenue, the company has raised some $1.5 billion at a $12 billion valuation from Goldman Sachs Investment Partners, Valiant Capital Partners, Wellington Management, Andreessen Horowitz, Bessemer Venture Partners and more.

Kleiner Perkins went “back to the future” this week with the announcement of a $600 million fund. The firm’s 18th fund, it will invest at the seed, Series A and Series B stages. TCV, a backer of Peloton and Airbnb, closed a whopping $3 billion vehicle to invest in consumer internet, IT infrastructure and services startups. Partech has doubled its Africa VC fund to $143 million and opened a Nairobi office to complement its Dakar practice. And Sapphire Ventures has set aside $115 million for sports and entertainment bets.

The co-founder of Y Combinator will throw a sort of annual weekend getaway for nerds in picturesque Boulder, Colo. Called the YC 120, it will bring toget her 120 people for a couple of days in April to create connections. Read TechCrunch’s Connie Loizos’ interview with Altman here.

Consumer wellness business Hims has raised $100 million in an ongoing round at a $1 billion pre-money valuation. A growth-stage investor has led the round, with participation from existing investors (which include Forerunner Ventures, Founders Fund, Redpoint Ventures, SV Angel, 8VC and Maverick Capital) . Our sources declined to name the lead investor but said it was a “super big fund” that isn’t SoftBank and that hasn’t previously invested in Hims.

Five years after Andreessen Horowitz backed Oculus, it’s leading a $68 million Series A funding in Sandbox VR. TechCrunch’s Lucas Matney talked to a16z’s Andrew Chen and Floodgate’s Mike Maples about what sets Sandbox apart.

Here’s your weekly reminder to send me tips, suggestions and more to kate.clark@techcrunch.com or @KateClarkTweets

In a new class-action lawsuit, a former Munchery facilities worker is claiming the startup owes him and 250 other employees 60 days’ wages. On top of that, another former employee says the CEO, James Beriker, was largely absent and is to blame for Munchery’s downfall. If you haven’t been keeping up on Munchery’s abrupt shutdown, here’s some good background.

Consolidation in the micromobility space has arrived — in Brazil, at least. Not long after Y Combinator-backed Grin merged its electric scooter business with Brazil-based Ride, it’s completing another merger, this time with Yellow, the bike-share startup based in Brazil that has also expressed its ambitions to get into electric scooters.

If you enjoy this newsletter, be sure to check out TechCrunch’s venture-focused podcast, Equity. In this week’s episode, available here, Crunchbase editor-in-chief Alex Wilhelm, TechCrunch’s Silicon Valley editor Connie Loizos and Jeff Clavier of Uncork Capital chat about $100 million rounds, Stripe’s mega valuation and Pinterest’s highly anticipated IPO.


Source: The Tech Crunch

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Asana raises $75M Series D led by Al Gore’s Generation Investment Management

Posted by on Jan 31, 2018 in 8VC, Apps, Asana, dustin moskovitz, founders fund, Fundings & Exits, generation investment management, sam altman | 0 comments

 Asana, the productivity and collaboration service, is getting a major infusion of cash after Generation Investment Management, a London-based firm backed by former U.S. Vice President Al Gore, led a $75 million investment. Investment Management was joined in this Series D round by existing backers 8VC, Founders Fund, Y Combinator President Sam Altman who also participated in the round.… Read More
Source: The Tech Crunch

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