AI Research Group Co-Founded by Elon Musk Starts For-Profit Arm

(Bloomberg) -- OpenAI, the San Francisco-based artificial intelligence research group co-founded by Elon Musk and several other prominent Silicon Valley entrepreneurs, is starting a for-profit arm that will allow it to raise more money.

The group, which had been founded as a nonprofit company in late 2015, said the new for-profit arm is needed to attract venture capital and reward employees with stock options.

“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,” the company said in a blog post Monday.

In recent years, fierce competition to hire leading AI researchers has driven salaries in the field to levels usually reserved for professional athletes and television personalities. OpenAI revealed in tax filings that it in 2016 it had paid its chief scientist, Ilya Sutskever, more than $1.9 million that year, including a signing bonus.

Sutskever, who is also a member of the nonprofit’s board, said in an interview Monday that the change in structure was more about allowing OpenAI to purchase vast computing power than it was about rewarding researchers with big pay packages.

“To do cutting edge AI research, you need huge computer expenses,” he said. “We created this structure to raise the amount of money we would need to stay competitive.”

Many top machine-learning researchers work for large technology companies such as Alphabet Inc.’s two AI divisions, Google Brain and DeepMind, or Facebook Inc. These companies can offer employees stock options, which OpenAI can’t as a nonprofit.

Greg Brockman, OpenAI’s chairman and chief technology officer, said that, in the past, many researchers had made financial sacrifices to work for the group. “It is one thing to do it for some period of time but when you have a family and kids you need to figure out how you can make sure that people are putting their heart and soul into the organization,” he said.

For-profit AI companies can also tap financing from venture capital investors or the public markets, while OpenAI has been dependent on donations from wealthy benefactors. Those donations are tax-deductible, but may provide less of an incentive than the possibility of earning a large profit.

Brockman said OpenAI has held talks with potential outside investors and there would be “upcoming” announcements about funding. OpenAI describes the charitable foundation of LinkedIn co-founder Reid Hoffman and venture capital firm Khosla Ventures as “investors.”

The group said the nonprofit OpenAI Inc. would continue to be the sole controlling shareholder of the new for-profit OpenAI LP. If any members of the nonprofit’s board are also investors in the for-profit company, they will not be allowed to vote on key decisions affecting the relationship between the two entities.

The company said it would legally cap the profits that outside investors and employees could make from shares in OpenAI LP at 100 times their initial investment.

“Any returns beyond that amount -- and if we are successful, we expect to generate orders of magnitude more value than we’d owe to people who invest in or work at OpenAI LP -- are owned by the original OpenAI Nonprofit entity,” the company said.

OpenAI, which said it currently employs about 100 people, recently debuted language processing software that could take a sentence and from it generate a completely original and coherent passage of text. In move that was controversial within the AI research community, OpenAI decided not to release the key details of its most sophisticated version of this software because of fears it could be used to wage disinformation campaigns.

Before that, the nonprofit was best known for creating software bots that could work as a team to compete against top human teams in the computer game Dota2. It has also achieved breakthroughs in training robot hands to manipulate objects.

Musk co-founded OpenAI along with a group of other Silicon Valley entrepreneurs including Hoffman and Sam Altman, the co-founder and former president of startup incubator Y Combinator. Musk resigned from OpenAI’s board in 2018 and the group said he is no longer “formally involved” with it.

Altman recently stepped down from his role as president of Y Combinator in order to spend more time on other interests, including OpenAI.

OpenAI’s founders said they created the nonprofit to ensure that artificial general intelligence -- or AI that has the ability to perform a wide variety of tasks as well or better than humans -- benefits all humanity rather than being the intellectual property of a single, for-profit corporation.

©2019 Bloomberg L.P.