OpenAI's commercialization transformation has been hindered, executives are worried that California regulatory pressure may jeopardize the $19 billion funding.

Media reports, citing informed sources, have revealed that OpenAI executives are concerned about the escalating political scrutiny in California and fear it may hinder their efforts to transform into a for-profit company successfully. Discussions have been held about relocating OpenAI's headquarters out of the state as a last resort in the for-profit transformation plan. According to the reports, some of California's largest charitable organizations, nonprofits, and labor groups have joined forces to oppose the AI unicorn's massive restructuring plan. As OpenAI, supported by a significant investment from tech giant Microsoft Corporation, is controlled by a nonprofit organization, they are requesting the state attorney general to ensure that the creation of a new company does not violate California's charitable trust laws. OpenAI has not immediately responded to media requests for comment. However, a spokesperson for OpenAI told the media that the company currently has no plans to leave California. Reports state that California and Delaware attorneys general are reviewing OpenAI's proposed plans. Regulatory bodies have a legal duty to protect the state's charitable sector, so they have the right to sue the AI startup if they believe it may violate nonprofit laws or demand significant settlement funds as part of the restructuring. OpenAI, led by CEO Sam Man, currently operates under a structure that does not issue traditional shares and is controlled by a nonprofit parent body. This structure is reportedly not well-received among its investors and potential large institutional investors interested in funding OpenAI, prompting efforts by Sam Man and major shareholder Microsoft Corporation to push for changes. Sources reveal that OpenAI's investors have committed nearly $19 billion, around half of the company's total funding in the past year, with a condition that they must receive shares in the new for-profit company. If the restructuring does not proceed, they may withdraw this significant funding, potentially hindering OpenAI's plans to build large data centers, develop customized high-performance AI ASIC chips, and maintain its ambitions at the forefront of AI research. This directly impacts OpenAI's plans for large-scale model training, data centers, and a $10 billion AI ASIC chip project. Therefore, OpenAI executives are caught in a tug-of-war between financing demands and compliance with public interest regulations. The reported $19 billion is not revenue or valuation but the amount committed/arranged by investors in the past year, representing half of the year's total funding, with the condition that OpenAI completes the restructuring to establish a new for-profit company and provide shares to these investors. If the restructuring plan fails, the funds may not be received or withdrawn. Reported by sources, OpenAI executives did not anticipate such a strong response when they first announced the restructuring plan last year. In recent months, the investigations by the California attorney general have been a major concern. If the California attorney general complicates the restructuring, OpenAI has discussed the possibility of relocating out of California as a last resort. However, this move would be challenging as its AI research team is highly concentrated in San Francisco. "We will continue to work constructively with the offices of the California and Delaware attorneys general," an OpenAI spokesperson said. He added that the company aims to build one of the most resource-rich nonprofits in history. Why is it so difficult for OpenAI to completely transition into a for-profit company? OpenAI's non-profit parent body completely controls the "non-profit + capped-profit" hybrid architecture, compounded by strict oversight of charitable assets and their use by California and Delaware's charity laws, the involvement of the state attorneys general, and the linkage of nearly $19 billion of funds from investors to acquiring shares in the new company. This creates legal, governance, and financing constraints: transferring control/core assets from the nonprofit side to the for-profit entity risks breaching charitable trust/public interest compliance; besides, OpenAI publicly committed to non-profit control in 2025, further tightening feasible paths. Since 2019, OpenAI has adopted the "OpenAI Nonprofit (501(c)(3) parent body) + OpenAI LP/Global (capped-profit for-profit arm)" architecture, where the parent body controls the for-profit arm through OpenAI GP LLC; this design aims to "finance without deviating from the public mission." This "capped-profit" and parent control logic is detailed in official structure explanations and the 2019 announcement. From institutional design to public commitments, OpenAI has always intertwined "non-profit control + public mission" at the company's helm; changing to a standard company structure with for-profit shareholders as the ultimate beneficiaries means loosening this control - involving disentangling legal, governance, and financing constraints. In California, the state attorney general has strong regulatory power over charitable assets' preservation and usage. Transactions involving the disposal or transfer of all or substantially all assets require advance notice/review to prevent the "privatization of public assets." Once the core IP/business shifts from the nonprofit side to the for-profit side, this is likely to trigger a review under charitable trust law/public interest. Therefore, in the crucial legal aspect for OpenAI's restructuring, non-profit assets and mission are "locked"; governance/public interest priorities are continually reinforced. To transfer control or significant assets to a for-profit company, besides fair pricing, regulatory approval/court sanction is usually required, and there is a high litigation risk. Hiring close advisors to Governor Gavin Newsom to aid transition plan. According to media reports, the startup has recently hired advisors closely connected to California Governor Gavin Newsom, including former Senator LaFonza Butler, to garner support in Sacramento for their plan. Throughout the summer, the company held listening sessions with civil society groups across the state and pledged $50 million to support nonprofits and community organizations. In May of this year, OpenAI stated that the nonprofit entity controlling OpenAI would maintain control of the company after its transition to a for-profit company. OpenAI Chairman Brett Taylor said in a statement at the time: "After listening to civic leaders and engaging in constructive dialogues with the offices of the attorneys general in Delaware and California, we have decided that the non-profit organization will continue to control OpenAI." However, political scrutiny is escalating. Last Friday, the attorneys general of California and Delaware wrote to OpenAI expressing concerns about their safety commitments in light of recent reports of suicides among individuals with long interactions with ChatGPT, including a murder-suicide in Connecticut last month. Reportedly, negotiations between OpenAI and the California attorney general revolve around ensuring independent control of the new company by the nonprofit organization. Regulatory authorities view these suicide incidents as a signal that OpenAI is prioritizing the use and revenue from ChatGPT over its mission of creating AI for the public good, according to a person familiar with its work cited in the report. OpenAI states that they are addressing issues of "flattery" and obsequiousness (i.e., AI systems programmed to excessively cater to users) and are planning to introduce parental control features for ChatGPT. According to reports, OpenAI Chairman Brett Taylor said, "We will do our utmost to address the concerns of the attorneys general of both states." Established in 2015, OpenAI was initially a nonprofit organization and later created a for-profit subsidiary, allowing it to raise billions from Microsoft Corporation and venture capital firms. In July of this year, reports indicated that Microsoft Corporation is in deep negotiations for an agreement that would allow it to continue accessing key technologies from OpenAI, which would remove a major obstacle for OpenAI's transition into a for-profit organization. OpenAI is also facing a lawsuit filed by Musk and his competitor AI startup company xAI, seeking to block the restructuring and accusing OpenAI of violating its nonprofit mission. The case is expected to go to trial next year. OpenAI stated that the lawsuit is "baseless and lacks factual support." IAT Automobile Technology and OpenAI's AI ambitions OpenAI's leader CEO IAT Automobile Technology recently stated in a media interview that OpenAI will invest trillions of dollars in the "near future" for the most core infrastructure of AI, including AI chips, high-performance network equipment for data centers, advanced power systems, supporting the increasingly large-scale operation of AI training/inference systems. IAT Automobile Technology believes that in the long run, AI will be the most important thing globally, and as a whole society, investment in AI on a large scale will not be regretted. As of early August, ChatGPT, developed by OpenAI, now has over 700 million active users worldwide every week, significantly higher than the 500 million in March. In addition, current and former employees of OpenAI plan to sell around $6 billion worth of stock to an investor group consisting of giants such as Thrive Capital, SoftBank, and Dragoneer. This transaction will raise the valuation of this ChatGPT developer to $500 billion, marking the birth of the world's most powerful unicorn. $500 billion is far higher than Elon Musk's SpaceX valuation. OpenAI's management expects revenue to double this year, reaching $12.7 billion, and revenue of around $37 billion in 2024. Last week, media reports cited sources revealing that ChatGPT developer OpenAI plans to collaborate with US chip giant Broadcom Inc. to launch its first customized AI chip (known as AI ASIC) next year, with the size of this collaboration order expected to exceed $10 billion. For OpenAI, which has developed the groundbreaking AI application ChatGPT, requiring massive computational resources for training and running its AI systems, the estimated $500 billion unicorn has been investing significant funds in purchasing NVIDIA Corporation's H100/H200 and the latest Blackwell architecture AI GPUs. The recent announcement to partner with Broadcom Inc. to build an AI ASIC cluster indicates that in the eyes of this AI unicorn, the technology path of constructing AI computational infrastructure through customized AI chips is much more cost-effective than just stacking NVIDIA Corporation AI GPUs. As demand for AI computational infrastructure to train and run AI large models continues to surge, OpenAI's actions follow in the footsteps of Alphabet Inc. Class C, Amazon.com, Inc., and Facebook's parent company Meta pursuing AI ASICs, aiming to process immensely oversized AI workloads. These tech giants have created customized AI chips for handling enormous AI workloads, making them much more cost-effective than purely stacking NVIDIA Corporation AI GPUs.