Welcome back humans.

What a week in “AI!” And by “AI” I mean the corporate ousting saga that is OpenAI. This week I’ve curated the OpenAI dealings for those who’ve gotten a bad case of whiplash this week and don’t know wtf is going on. As usual I’m adding my spin to it.

Let’s get into it…

Here’s what you need to know about AI today:

• Sam Altman gets ousted from OpenAI and then hired at Microsoft

• OpenAI gets a new board and Altman returns to the helm

• Overview of OpenAI’s complex board structure

• Mini Op-Ed: The importance of board control and corporate structures

#1 Sam Altman and the OpenAI Drama

Good Work, did an excellent (and hilarious) report on everything that has happened with OpenAI. It published last night and while it doesn’t cover the most recent developments as of this morning it will give you a non-intense way of understanding everything that is going on.

💡 My take:

What happened with Altman isn’t uncommon but usually happens when there are VC’s on the board. OpenAI has a non-traditional and complex corporate structure that doesn’t include any VC board members yet this still occurred. It reminds me when a portfolio company of mine got ousted from his company by incompetent VC’s, or when Kimberly Bryant got ousted for her company by non-profit board members. It goes to show you that if this is the game you decide to play board control is often more important than how much equity you own in your company. See below for more on this take in a mini op-ed.

#2 Altman Returns + OpenAI Gets a Shiny New Board

Altman’s return, announced this morning, comes after a whirlwind less than a week where he was ousted.

The initial (read ‘new’) board steering OpenAI under him includes some heavy hitters.

We're talking Bret Taylor of Salesforce fame and Larry Summers, ex-US Treasury Secretary.

Adam D’Angelo, the CEO of Quora, also remains on the board. Interesting…

The specifics of this leadership shuffle at OpenAI are still being ironed out.

Stay tuned as this saga unfolds and we discover what it means for AI's future.

💡 My take:

Ultimately I think this is what is needed. OpenAI is an outlier and is growing at the speed of light. The board has already showed how the company is split internally and, most importantly, that they aren’t a good fit for the stage and where the company is going.

#3 OpenAI’s Complex Corporate Structure

Imagine being at the helm of an AI titan and then, poof, you're out.

This kind of drama isn't just for TV shows – it's real in Silicon Valley.

Imagine creating a company with zero equity for yourself; that's what Altman did with OpenAI.

A board sits at the top of OpenAI's structure, controlling everything underneath.

OpenAI Inc, the 501(c)(3) charity, is the big cheese, prioritizing AI safety over profit.

Below that, things get a bit murky with holding companies and such. You can get details of their very complex corporate structure here.

Essentially, OpenAI Global, the company making headlines, is at the bottom with no control.

OpenAI started as a nonprofit but added a capped-profit arm in 2019 to attract brains and bucks.

Investors' profits are capped, but the mission of controlling AI remains the chief aim.

Altman was the face of the company, but with no equity, he lacked real power.

Founders usually have some sort of share structure to keep control; Altman didn't.

Brockman, the other co-founder, also left, leaving Altman without allies on the board.

Moral of the story? Even AI visionaries need to watch their backs. 😯

💡 My take:

Complex corporate structures can be tricky but I think the initial formation was truly done in good faith. I mean they had been working on OpenAI for nearly a decade and then BOOM it took off. Over my past 20 years I’ve seen companies start as for-profits and move to become non-profits and vice a versa. A company, when growing, truly does have a mind of its own. Not everything finishes how it starts.

🧠 Mini OpEd: Why Board Control Matters and How to Get It

This summer I wrote an op-ed on my personal newsletter about how I was able to grow one of my companies, Streamlytics, in valuation while maintaining control of the company. The essay was so popular it’s what inspired me to start writing this newsletter!

In the essay I explained to importance of separate class structures in order to maintain control. You can read the essay in depth here but in short I followed a once popular corporate structure that the likes of Mark Zuckerberg and others in Silicon Valley employed: setting up a dual class structure. What you learn in business is the amount of equity you retain in a company really doesn’t matter. You can own 80% of a company and if you have a board then you are at risk for not having any control and can be fired. Setting up a dual class structure allows you to have your founders shares issued as a separate class of stock with different voting rights. As you get diluted, from raising money, you will still maintain control because essentially you’ll want to sell the class of shares that have 1:1 voting rights.

I do want to note that this is a complex structure that many can’t pull off. Some reasons why it might not work:

• You don’t have enough experience and haven’t “proven” yourself as a founder. This is really about what leverage you have as a founder. If you are someone who has accomplished something notable in the past typically it’s easier to get investors because it’s seen as less of a risk. This gives you leverage and an opportunity to build momentum.

• You’re company isn’t up and to the right. Many people don’t realize that fundraising is sales. Your job as the CEO is to build momentum for your company and then source the capital that is needed. In the fast paced world that we live in many investors get signals from the media (all forms). It is a tool to tell your story and build (ethical) momentum for what you are building. Again, this all goes back to leverage and momentum. The more momentum you build the more leverage you have.

• The Economy. This is probably the biggest one: Pay attention to market conditions. This strategy isn’t going to work if investors aren’t frothy and are waiting to deploy capital. Sometimes founders can get caught up in their own world and not realize the market conditions that are happening around them. If you choose to raise money from investors this is part of your job.

I think the bigger takeaway in all of this, complex corporate structure or not, is that Altman did an excellent job establishing an ally in Microsoft. When sh*t hit the fan Satya was able to pull levers to setup a plan for Altman and MS to continue their work via OpenAI and publicly make the board look incompetent. The land of startups isn’t all big ideas and code. It’s corporate strategy on steroids at quantum speed.

Disclaimer: Take this with a grain of salt and consult your legal and financial counsel for guidance.

💩Sh*ts & Giggles

That’s all for today folks! I hope you have an amazing holiday and I’ll see yall next week (no Sunday email this week) when we get back to regularly scheduled programming.

FYI if you miss me you can also find me in my membership community AI Future Lab. Join!

See you on the interwebs,

AB