Sam Altman's OpenAI Equity Through Sequoia

Sam Altman's Equity in OpenAI: A Shifting Narrative

In 2023, OpenAI CEO Sam Altman appeared before the U.S. Congress to address concerns surrounding the potential risks of artificial intelligence. During his testimony, Altman stated he held no equity in OpenAI, a claim he had consistently made previously, emphasizing his motivation stemmed solely from a passion for the company’s work.

Recent Disclosures and Prior Investments

However, Altman recently revealed he did, in fact, possess some equity in OpenAI via a Sequoia fund, an investment he has since divested. This information surfaced during a recent interview with Bari Weiss, where Altman was questioned regarding potential equity holdings should OpenAI successfully transition to a for-profit structure.

While Altman’s earlier investment through Y Combinator was publicly known, his involvement with Sequoia was not. OpenAI publicly acknowledges Altman’s indirect investment through YC on its official website.

Details of the Sequoia Investment

The company characterizes this as a “small investment” and asserts it represents the CEO’s “only interest” in the organization, made prior to his assumption of full-time leadership at OpenAI.

Sequoia initially invested in OpenAI in 2021, two years after Altman became the full-time CEO. At the time, OpenAI’s valuation stood at approximately $14 billion. This figure has since experienced substantial growth, reaching $157 billion following the startup’s latest funding round, in which Sequoia also participated.

Uncertainties Surrounding Altman's Stake

Although Sequoia’s 2021 investment in OpenAI has significantly increased in value, several details regarding Altman’s specific investment through the venture firm remain unclear. Venture capital firms, such as Sequoia, are not obligated to publicly disclose their limited partner investors.

The timing of Altman’s sale of the stake and the amount received remain undisclosed.

OpenAI's Official Statement

An OpenAI spokesperson confirmed Altman’s prior investment to TechCrunch, but refrained from providing specific details. Kayla Wood, OpenAI’s spokesperson, stated: “Sam has never had any direct ownership in OpenAI. He held a negligible stake, less than a fraction of a percent, in a general Sequoia fund with a broad portfolio, which he later learned included minimal exposure to OpenAI. Sam no longer has any ongoing commitments to the fund.”

Equity in Tech Companies: A Common Practice

It is typical for CEOs to hold equity in the companies they lead, particularly in publicly traded corporations, where equity often constitutes the largest portion of their compensation. Startup founders generally begin with complete equity ownership, gradually distributing shares to employees and investors.

However, OpenAI was initially established as a nonprofit organization with a unique structure, and Altman has repeatedly asserted his lack of ownership. He reiterated this position earlier this month during The New York Times’ DealBook Summit.

Reasons Behind Altman's Initial Decision

During an interview with the All In podcast in May, Altman explained his initial decision not to acquire equity was influenced by the company’s organizational structure. OpenAI’s charter mandates that its nonprofit board be comprised of a majority of independent directors, who are prohibited from holding equity in the company.

Altman stated he intentionally avoided taking equity to qualify as one of these independent directors. However, this stance has prompted scrutiny of his motivations, potentially contributing to the company’s shift away from this structure.

Implications for OpenAI's Transition

Altman’s equity position has gained increased relevance as OpenAI seeks to transition its for-profit arm, currently overseen by the nonprofit board, into an independent entity. There has been speculation that OpenAI may consider granting Altman equity during this transition, although both the company and Altman have denied any such plans.

Legal Challenges and Competitive Dynamics

OpenAI’s for-profit transition is currently facing potential delays due to a lawsuit filed by Elon Musk. Musk’s lawsuit alleges that OpenAI is deviating from its original nonprofit mission of making AI research accessible to all.

OpenAI, however, contends that Musk initially intended to convert the startup into a for-profit entity.

Public Statements and Industry Rivalry

During his interview with Weiss, Altman characterized Elon Musk as a “bully” who “clearly likes to get in fights.” He also criticized Meta for requesting California’s attorney general to impede OpenAI’s for-profit transition.

“I don’t know why Meta sent that letter, but I do know they know that’s not how it works. I know that part is in bad faith,” Altman stated. “You can imagine lots of other reasons that Meta might have sent this letter. You can imagine they wanted to curry favor with Elon, you can imagine that they felt like it would help them compete with us.”

Despite OpenAI’s assertion that Altman’s exposure through Sequoia was minimal, discrepancies exist between his previous statements regarding a lack of equity and his recent remarks on the Weiss podcast.