OpenAI’s unique equity structure, stemming from its origins as a nonprofit, has created a significant issue for its employees. The company’s skyrocketing valuation has turned many employees into paper millionaires, but they’re unable to donate their equity to charity. This limitation has been a recurring topic of discussion among employees in Slack threads, all-hands meetings, and internal discussions.
The Issue with OpenAI’s Equity Structure
The company maintains tight control over its shareholder base by not allowing employees to transfer their profit participation units (PPUs) without approval. An OpenAI spokesperson stated that this is a matter of ‘good governance’ and managing their cap table effectively. However, employees have been pushing for a change, arguing that donating equity can provide significant tax benefits and allow them to support their preferred charities more effectively.
Benefits of Donating Equity
Experts explain that donating equity through donor-advised funds (DAFs) can lead to an organization receiving up to 40% more than if the employee had sold the shares and donated the cash. This is because DAFs are tax-exempt nonprofits that can liquidate shares without incurring capital gains taxes. Employees can then advise the DAF on their charities of choice, receiving an immediate fair-market-value tax deduction.
OpenAI’s Response and Future Plans
While OpenAI has offered limited equity donation opportunities in the past (in 2021 and 2022) and made a special exception in 2023, employees remain frustrated with the lack of consistent opportunities. The company has indicated that once it restructures into a public benefit corporation, it will be easier to facilitate equity donations. However, this has left employees ‘at least a year late’ in expecting a charitable donation opportunity, according to sources.
Implications and Concerns
The dispute highlights the complexities of OpenAI’s corporate structure and the tension between employee desires and management priorities. Some speculate that OpenAI may be hesitant to allow certain charities, particularly those focused on AI safety, onto its cap table due to potential conflicts with its commercialization efforts. As the company’s valuation continues to grow (recently reaching $300 billion), the issue is becoming increasingly pressing for employees who wish to support charitable causes.
As OpenAI navigates its restructuring and potential for-profit conversion, the issue of equity donations remains a significant concern for its employees. The company’s leadership has prioritized closing its funding round and the for-profit conversion process, with equity donations being considered after these major milestones.
