Thanksgiving week is typically a slow time for news. That didn’t happen this year.
OpenAI’s venture investors are still fighting to reinstate Sam Altman as the CEO, my colleague Jessica Mathews reported late Monday. The reason? OpenAI may become worthless with Altman moving to Microsoft, and the VCs want to preserve their investment. Some of the venture firms are also weighing a lawsuit against OpenAI’s board of directors.
Personally, I don’t blame the VCs for resorting to legal action, if it does go there. OpenAI’s board shocked nearly everyone late Friday when it ousted Altman as CEO and pushed Greg Brockman, who was president and chairman, to step down from the board. Brockman later resigned. (Both Altman and Brockman are cofounders of OpenAI.)
The departures caused a fierce outcry on X and a slew of press coverage, most of which wasn’t favorable. Over the weekend, OpenAI’s board was in talks to bring Altman back. That didn’t work. Microsoft announced late Sunday or early Monday, depending on your time zone, that Altman and Brockman would be joining the technology giant to lead a new AI research team. Then, on Monday, nearly all of OpenAI’s more than 700 employees threatened to leave the company if the current board didn’t resign and reinstate Altman as CEO and Brockman as president, according to a letter.
With all the twists and turns of the OpenAI saga, we still don’t know why Altman was fired. The board initially said he “was not consistently candid in his communications” and provided no further insight. One VC told Fortune, and this is just musing, that the Altman firing was possibly orchestrated to get OpenAI’s unusual corporate structure overturned. The firm was valued at $86 billion in October, but Altman doesn’t have any true equity, the VC noted. "He might have some shadow equity,” they added. OpenAI did not return messages for comment. Altman could not be reached.
There are no real winners so far among the chaos. Microsoft has invested over $13 billion in OpenAI and owns 49% of the company, the New York Times reported. News of Altman’s move to Microsoft on Monday caused shares to rise nearly 2%, closing at an all-time high of $377.44.
But it’s not exactly a win for the tech behemoth, wrote Alyson Shontell, editor-in-chief of Fortune. “Microsoft is now also on the hook for building up a new AI research organization under Altman and Brockman within its ranks. Even worse, some of Microsoft’s investment in OpenAI could end up a sunk cost as Altman loyalists defect from the startup, which may be unable to fulfill its contractual obligations to Microsoft,” she wrote.
The potential losers are much more obvious: the venture capitalists who poured hundreds of millions into OpenAI—namely Khosla Ventures, Sequoia, and Thrive Capital. The VCs may have been prepared to fund a new company led by Altman and Brockman, but they’re unable to do that if the pair sticks with Microsoft. “Without those two at the helm at OpenAI, the VCs will likely lack confidence in the remaining team—and could see their investment go to zero,” Shontell wrote.
A lot remains unclear at this time, but one thing has come into focus: The OpenAI chaos isn’t ending any time soon.
SCOOP. On Sunday, I reported that Petal Card, the fintech backed by Peter Thiel’s Valar Ventures, was seeking a buyer as doubts loom about its survival. The startup was valued at $800 million in 2022.
See you tomorrow,
Luisa Beltran
Twitter: @LuisaRBeltran
Email: luisa.beltran@fortune.com
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