OpenAI ex-employees worry about company’s control over their millions of dollars in shares
OpenAI CEO Sam Altman speaks during the Microsoft Build conference at Microsoft headquarters in Redmond, Washington, on May 21, 2024.
Jason Redmond | AFP | Getty Images
OpenAI plans to allow stakeholders to sell a portion of their shares every year, but the company, which has been valued at over $80 billion, is taking a restrictive approach that’s raised concerns among current and former employees about the startup’s power to determine who participates, CNBC has learned.
Due to OpenAI’s skyrocketing valuation following the launch of ChatGPT in late 2022, many early employees are sitting on millions of dollars worth of equity. With no IPO on the horizon and a price tag that makes the company too expensive to be acquired, the only way for shareholders to realize any value from their equity in the near term is through secondary stock sales.
However, current and former OpenAI employees have been increasingly concerned about access to liquidity, according to interviews and documents shared internally. Those fears have intensified in recent weeks after reports that the company had the power to claw back vested equity, said people familiar with the matter, who asked not to be named because the information they shared is confidential.
In an attempt to assuage some of those concerns, OpenAI recently circulated a document, obtained by CNBC, titled, “Overview and Recap of OpenAI’s Tender Process,” detailing how the company has conducted equity purchases in the past and how it plans to handle them in the future. The issue has become a major topic of conversation at OpenAI and among people who have recently left, according to internal documents, Slack messages and exit agreements viewed by CNBC, as well as conversations with multiple former OpenAI employees.
OpenAI has told employees that it will try to hold one tender offer roughly every year, but that depends on how both the company and the market are faring at the time, a person with knowledge of the matter said.
It’s the latest controversy at OpenAI, which has been at the center of the tech universe for much of the past 18 months, most recently announcing a partnership with Apple on Monday to integrate ChatGPT and Siri. Backed by roughly $13 billion from Microsoft, OpenAI has an atypical “capped-profit” model, with a nonprofit as the governing entity for the for-profit subsidiary.
Less than seven months ago, co-founder Sam Altman was suddenly ousted as CEO due to a conflict with the board, before being abruptly reinstated days later after an uproar among investors and loyal staffers.
The Federal Trade Commission and the Justice Department, meanwhile, are set to open antitrust investigations into Microsoft, OpenAI and Nvidia, examining their influence on the AI industry, a source familiar with the matter confirmed to CNBC last week. And last month, OpenAI disbanded its team focused on the long-term risks of AI just a year after forming the group. That came shortly after OpenAI co-founder Ilya Sutskever and Jan Leike, announced their departures, with Leike writing in a post on X that OpenAI’s “safety culture and processes have taken a backseat to shiny products.”
As OpenAI has grown, the company has used aggressive tactics to get employees to sign exit agreements that affect the future of their stock holdings.
“If you have any vested Units and you do not sign the exit documents, including the General Release, as required by company policy, it is important to understand that, among other things, you will not be eligible to participate in future tender events or other liquidity opportunities that we may sponsor or facilitate as a private company,” OpenAI wrote in the agreement, which was viewed by CNBC.
The paperwork for departing employees says that in order to participate in tender events and liquidity opportunities, the person must be in compliance with “all applicable company policies, as determined by OpenAI.”
Last month, OpenAI announced it would backtrack on a controversial decision to make former employees choose between signing a non-disparagement agreement that would never expire and keeping their vested equity in the company. An internal memo, viewed by CNBC, was sent to former employees and shared with current staffers.
The memo, addressed to each former employee, said that at the time of the person’s departure from OpenAI, “you may have been informed that you were required to execute a general release agreement that included a non-disparagement provision in order to retain the Vested Units [of equity].”
“We’re incredibly sorry that we’re only changing this language now,” an OpenAI spokesperson told CNBC after the company changed course. “It doesn’t reflect our values or the company we want to be.”
In an email sent to CNBC late Monday, an OpenAI spokesperson said, “All eligible current and former employees have been offered opportunities for liquidity at the same price in the past, regardless of where they work or what they signed at departure.” The company doesn’t expect that to change, the spokesperson said.
‘Further questions to address’
A former employee, who shared his OpenAI correspondence with CNBC, asked the company for additional confirmation that his equity and that of others was secure.
“I think there are further questions to address before I and other OpenAl employees can feel safe from retaliation against us via our vested equity,” the ex-employee wrote in an email to the company in late May. He added, “Will the company exclude current or former employees from tender events under any circumstances? If so, what are those circumstances?”
The person also asked whether the company will “force former employees to sell their units at fair market value under any circumstances” and what those circumstances would be. He asked OpenAI for an estimate on when his questions would be addressed, and said he hasn’t yet received a response. OpenAI told CNBC that it is responding to individual inquiries.
According to internal messages viewed by CNBC, another employee who resigned last week wrote in OpenAI’s “core” Slack channel that “when the news about the vested equity clawbacks provisions in our exit paperwork broke 2.5 weeks ago, I was shocked and angered.” Details that came out later “only strengthened those feelings,” the person wrote, and “after fully hearing leadership’s responses, my trust in them has been completely broken.”
The person then tagged CEO Sam Altman in the message, highlighting what he described as a paradox in Altman’s stated effort to responsibly build artificial general intelligence, or AGI.
“You often talk about our responsibility to develop AGI safely and to distribute the benefits broadly,” he wrote. “How do you expect to be trusted with that responsibility when you failed at the much more basic task” of not threatening “to screw over departing employees,” the person added.
The company has also, in the past, opened up “donation rounds” to current employees, allowing them to donate a certain amount of their vested equity to charity, which brings with it tax incentives. Former employees could be excluded, as the donation rounds will likely be offered “to active employees only and are not guaranteed to happen,” according to messages viewed by CNBC.
Much of the discussion around future stock issues will now likely include a new voice, after OpenAI announced on Monday that it hired Sarah Friar, who was previously CEO of Nextdoor and CFO of Square, as its finance chief.
OpenAI, which was founded in 2015, has held three tender rounds to date. The first was in mid-2021, the second was between April and June 2023, and the latest was between November 2023 and March 2024.
For former employees, the rounds typically took place months after transactions for current staffers, according to an internal document. In at least two tender offers, the sales limit for former employees was $2 million, compared to $10 million for current employees.
In addition to current and former employees, OpenAI has a third tier for share sales that consists of ex-employees who now work at competitors. Rather than being an official tender, the third group participates in “direct secondary transactions facilitated directly between the buyer (OpenAI or pre-approved investors) and seller,” according to an internal document.
OpenAI said in the document that the reason for separating current and former employees is to avoid delaying the sale process for existing workers and to get a sense of how much equity they want to sell before committing to terms for those who have left.
OpenAI said the reason for the third category had to do with “safeguarding competitively sensitive information,” since “by law, we must share certain information with all sellers and buyers in the same tender offer.”
“For example, in prior tender offers, we have disclosed detailed financial data, and non-public information about our Microsoft deals, even when the negotiations were still ongoing and unannounced,” the company wrote in the internal document.
Larry Albukerk, founder of EB Exchange, which helps tech workers with pre-IPO stock sales, told CNBC that while companies have a lot of latitude in how they handle tender offers, as long as it’s written in the contract, creating an adversarial relationship with former employees can be damaging for morale.
“Ultimately, employees are going to become ex-employees,” Albukerk said. “You’re sending a signal that, the second you leave, you’re not on our team, and we’re going to treat you like you’re on the other team. You want people to root for you even after they leave.”
Stock worth $0?
Of even greater concern, some insiders said, is language in the terms of a corporate document related to Aestas, a company OpenAI set up to manage the offerings. The document suggests ex-employees could be stripped of their equity.
For anyone who leaves OpenAI, “the Company may, at any time and in its sole and absolute discretion, redeem (or cause the sale of) the Company interest of any Assignee for cash equal to the Fair Market Value of such interest,” the document states.
Former OpenAI employees said that anytime they received a unit grant, they had to send a document to the IRS stating that the fair market value of the grant was $0. CNBC viewed a copy of the document. Ex-employees told CNBC they’ve asked the company if that means they could lose their stock for nothing.
OpenAI said it’s never canceled a current or former employee’s vested equity or required a repurchase at $0.
Legal experts said OpenAI’s treatment of ex-employees who leave to work at competitors could be problematic, especially in California.
In April, the FTC voted to ban non-compete agreements for for-profit companies. A final rule will go into effect in September. The ban not only protects people from punishment for accepting another role, but also covers any agreement that “penalizes a worker” or “functions to prevent” a worker from working at a competitor.
An attorney, who asked not to be named due to client conflicts in the space, said that OpenAI’s behavior towards those ex-employees leaves a “plausible argument” for future litigation tied to the non-compete issue. Another attorney, who also requested anonymity, called it “undue pressure.”
“It sounds like they are playing hardball, but they would be far from the only company to act like this in the resale of their private securities,” Doug Brayley, a partner at Ropes & Gray, said in an interview. “Private companies generally leave themselves a lot of discretion about how to treat the repurchase of their equity.”
The Rebel-Quad is the second-generation product from Rebellions and is made up of four Rebel AI chips. Rebellions, a South Korean firm, is looking to rival companies like Nvidia in AI chips.
Rebellions
South Korean artificial intelligence chip startup Rebellions has raised money from tech giant Samsung and is targeting a funding round of up to $200 million ahead of a public listing, the company’s management told CNBC on Tuesday.
Last year, Rebellions merged with another startup in South Korea called Sapeon, creating a firm that is being positioned as one of the country’s promising rivals to Nvidia.
Rebellions is currently raising money and is targeting funding of between $150 million and $200 million, Sungkyue Shin, chief financial officer of the startup, told CNBC on Tuesday.
Samsung’s investment in Rebellions last week was part of that, Shin said, though he declined to say how much the tech giant poured in.
Since its founding in 2020, Rebellions has raised $220 million, Shin added.
The current funding round is ongoing and Shin said Rebellions is talking to its current investors as well as investors in Korea and globally to participate in the capital raise. Rebellions has some big investors, including South Korean chip giant SK Hynix, telecommunication firms SK Telecom and Korea Telecom, and Saudi Arabian oil giant Aramco.
Rebellions was last valued at $1 billion. Shin said the current round of funding would push the valuation over $1 billion but declined to give specific figure.
Rebellions is aiming for an initial public offering once this funding round has closed.
“Our master plan is going public,” Shin said.
Rebellions designs chips that are focused on AI inferencing rather than training. Inferencing is when a pre-trained AI model interprets live data to come up with a result, much like the answers that are produced by popular chatbots.
With the backing of major South Korean firms and investors, Rebellions is hoping to make a global play where it will look to challenge Nvidia and AMD as well as a slew of other startups in the inferencing space.
Samsung collaboration
Rebellions has been working with Samsung to bring its second-generation chip, Rebel, to market. Samsung owns a chip manufacturing business, also known as foundry. Four Rebel chips are put together to make the Rebel-Quad, the product that Rebellions will eventually sell. A Rebellions spokesperson said the chip will be launched later this year.
The funding will partly go toward Rebellions’ product development. Rebellions is currently testing its chip which will eventually be produced on a larger scale by Samsung.
“Initial results have been very promising,” Sunghyun Park, CEO of Rebellions, told CNBC on Tuesday.
Park said Samsung invested in Rebellions partly because of the the good results that the chip has so far produced.
Samsung is manufacturing Rebellions’ semiconductor using its 4 nanometer process, which is among the leading-edge chipmaking nodes. For comparison, Nvidia’s current Blackwell chips use the 4 nanometer process from Taiwan Semiconductor Manufacturing Co. Rebellions will also use Samsung’s high bandwidth memory, known as HBM3e. This type of memory is stacked and is required to handle large data processing loads.
That could turn out to be a strategic win for Samsung, which is a very distant second to TSMC in terms of market share in the foundry business. Samsung has been looking to boost its chipmaking division. Samsung Electronics recently entered into a $16.5 billion contract for supplying semiconductors to Tesla.
If Rebellions manages to find a large customer base, this could give Samsung a major customer for its foundry business.
Technology
Europe sets its sights on multi-billion-euro gigawatt factories as it plays catch-up on AI
Technology
India overtakes China in smartphone exports to the U.S. as manufacturing jumps 240%, report shows
Workers assemble smartphones at Dixon Technologies’ Padget Electronics Pvt factory in Uttar Pradesh, India, on Jan. 28, 2021.
Bloomberg | Bloomberg | Getty Images
India has overtaken China to become the top exporter of smartphones to the U.S., according to research firm Canalys, reflecting the shift in manufacturing supply chain away from Beijing amid tariff-fueled uncertainty.
Smartphones assembled in India accounted for 44% of U.S. imports of those devices in the second quarter, a significant increase from just 13% in the same period last year. Total volume of smartphones made in India soared 240% from a year earlier, Canalys said.
In contrast, the share of Chinese smartphone exports to the U.S. shrank to 25% in the quarter ended June, from 61% a year earlier, Canalys data released Monday showed. Vietnam’s share of smartphone exports to the U.S. was also higher than that of China at 30%.
The surge in shipments from India was primarily driven by Apple‘s accelerated shift toward the country at a time of heightened trade uncertainty between the U.S. and China, said Sanyam Chaurasia, principal analyst at Canalys. This is the first time India exported more smartphones to the U.S. than China.
Apple has reportedly been speeding up its plans to make most of its iPhones sold in the U.S. at factories in India this year, with the aim of manufacturing around a quarter of all iPhones in the country in the next few years.
Trump has threatened Apple with additional tariffs and urged the company’s CEO Tim Cook to make iPhones domestically, a move experts have said would be nearly impossible as it would push iPhone prices higher.
While many of Apple’s core products, including iPhones and Mac laptops, have received exemptions from Trump’s “reciprocal tariffs,” officials have warned that it could be a temporary reprieve.
Its global peers, Samsung Electronic and Motorola, have also been striving to move assembly for U.S.-bound smartphones to India, though their shift has been significantly slower and is limited in scale compared with Apple, according to Canalys.
Last-mile assembly
Many global manufacturers have been increasingly shifting their final assembly to India, allocating more capacity in the South-Asian nation to serve the U.S. market, said Renauld Anjoran, CEO of Agilian Technology, an electronics manufacturer in China.
The Guangdong-based company is now renovating a facility in India with plans to move part of its production to the country. “The plan for India is moving ahead as fast as we can,” Anjoran said. The company expects to begin trial production runs soon before ramping up to full-scale manufacturing.
While shipments, which represent the number of devices sent to retailers do not reflect final sales, they are a proxy for market demand.
Overall, iPhone shipments declined by 11% year on year to 13.3 million units in the second quarter, reversing the 25% growth in the prior quarter, according to Canalys.
Shares of Apple have tumbled 14% this year, partly on concerns over its high exposure to tariff uncertainty and intensifying competition in smartphones and artificial intelligence sector.
While the company has begun assembling iPhone 16 Pro models in India, it still relies heavily on China’s more mature manufacturing infrastructure to meet U.S. demand for the premium model, Canalys said.
In April, Trump imposed a 26% tariff on imports from India, much lower than the triple-digit tariffs on China at the time, before pausing those duties until an Aug 1. deadline.
— CNBC’s Arjun Kharpal contributed to this story.
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