Why Sam Altman owning or not owning equity in OpenAI is such a dramafest (2024)

Will OpenAI CEO Sam Altman get a big stake in his company worth billions of dollars?

If it were any other business, the answer would be a definite yes. Virtually every CEO, from day one, is awarded a large number of shares that could be worthless if the company fails, or a fortune if it succeeds.

But in the case of Altman and OpenAI, what is routine has become a major drama over the past week. News reports initially suggested that he would, after nine years as CEO, finally get a large stake, followed days later by a denial.

“The reason this is unusual is not because Altman is getting equity, but because he has no equity currently,” Karthee Madasamy, founder and managing partner at MFV Partners, told Fortune.

Startup founders typically get an equity stake, along with a cash salary, because investors want them to have “skin in the game.” The goal is to align the interest of the CEO with investors in increasing the company’s value.

“Typically, you’d be concerned if the CEO didn’t have aligned interest,”says Andy Harrison, CEO of venture capital firm S32, told Fortune.

The plan currently under consideration is giving Altman a 7% equity stake in OpenAI that could be worth over $10 billion.On paper at least, he would become add to his already sizable fortune, part of which came from his previous roles as president of startup accelerator Y Combinator and founder of social networking service Loopt.

OpenAI’s equity drama comes amid a potential move away from its current complicated structure, in which a nonprofit board controls a for-profit arm. It also comes as it reportedly seeks a major new round of funding that could close as early this week and value the company at $150 billion.

Adding to the intrigue is the fact that Altman himself has repeatedly put his lack of OpenAI equity in the public spotlight. Last year, for example, he testified during a Senate hearing that “I have no equity in OpenAI” and “I do this because I love it.”

His comments seemed to align with OpenAI’s original do-good nonprofit mission, established at its founding in 2015. Its stated goal is to “develop artificial general intelligence (AGI) safely and for the benefit of humanity,” a reference to AI that can surpass humans at most economically viable work.

Altman appears to be sticking to that script, at least for now. At an all-hands meeting last week with OpenAI staff, Altman denied that he was in for a massive payday—even though investors are “pushing hard” for him have a personal stake in the company, a source familiar with the situation told Fortune.

“Sam’s been pushing back, saying that if they don’t understand the intrinsic motivation of getting to helpful AGI faster than they shouldn’t be investing,” the source said.

But whether Altman himself is pressing to own a stake in OpenAI, most founders do. Over time, their percentage ownership may drop, as new investment comes in, but the value of their stake can still rise.

“It’s important to understand that a founder like Sam Altman would typically still have 7% or even more equity in a company like OpenAI at this stage in its investment lifecycle,” Madasamy, the venture capitalist, explained. “Mark Zuckerberg famously owned 28.2% of Facebook equity when it filed for its S-1 ahead of its public offering,” using industry jargon for an IPO.

The issue people are having now might be more of a negative perception of Altman suddenly cashing in, he said, considering OpenAI’s rumored private market valuation of $150 billion. If Altman is given a 7% stake, it would be worth a monumental $10.5 billion.

One former OpenAI employee told Fortune he agreed that the “optics are really difficult” when it comes to the equity situation, given that Altman has for so long used his lack of equity as a sign of OpenAI’s “do-good” strategy. But the source said that at this point, Altman may well be simply waiting for investors to bring him an equity offer after the new corporate structure has been implemented.

“My guess is that he wants the new structure to settle in, get people into new roles, keep running things, then give the board and shareholders the option to decide what future value he can bring by keeping him in the CEO spot,” the source said.

On Thursday, OpenAI chair Bret Taylor acknowledged that the company’s board has discussed giving Altman equity, but that it had yet to decide. In a statement, Taylor added that no specific numbers have been discussed in terms of any Altman equity stake.

But if specific figures are discussed, giving Altman a 7% stake in OpenAI would be in line with what people in similar positions would get, said Jody Thelander, CEO of J. Thelander Consulting, a private market compensation platform and consulting firm.

”When you look at the data, the median percentage of total equity for male founders that have raised more than $90 million in financing is around 6.5%,” she said.

Still, the talk about Altman’s equity stake, as well as the restructuring of OpenAI from a nonprofit to a for-profit company, highlights the tension between what many see as short-term financial incentives versus long-term societal risks, said Tracy Barba, director of venture and equity ethics at the Markkula Center for Applied Ethics at Santa Clara University. Investors and company leaders, she said, may begin to prioritize financial returns over the long-term societal consequences of technologies like AI—which, ironically, OpenAI’s original nonprofit was created to prevent.

“Venture capitalists must confront whether they are simply backing growth or taking responsibility for the broader impact on society,” she said.

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Why Sam Altman owning or not owning equity in OpenAI is such a dramafest (2024)
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