OpenAI modifies rules on second-hand stock sales, ensures fair treatment of former employees

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OpenAI CEO Sam Altman addresses the audience at the Microsoft Build conference at Microsoft headquarters in Redmond, Washington, on May 21, 2024. 

Jason Redmond | AFP | Getty Images

OpenAI has adjusted its stance on secondary share transactions, permitting both current and former employees to engage equally in yearly tender offers, sources have discovered.

The AI startup previously followed a restrictive approach, giving the company the authority to decide who could partake in stock sales, as reported earlier this month. This raised concerns among several shareholders regarding their ability to obtain liquidity for the substantial equity they possess.

In a document disseminated last week through OpenAI’s equity administration software, the company amended its policy, stating that “all sellers (current and former service providers) will have identical sales limits.” Service providers encompass employees and advisors, as indicated in the document viewed by sources.

An OpenAI spokesperson has not promptly addressed a request for comment.

Tender offers have become a sensitive topic due to OpenAI’s soaring valuation post the introduction of ChatGPT in late 2022 and a relatively idle IPO market for over two years. With no immediate initial public offering in sight and a valuation making the company exorbitantly costly for potential acquirers, secondary stock sales currently provide the only means for shareholders to realize a portion of their paper wealth.

Recent and former OpenAI employees had expressed worries about liquidity access after reports surfaced that the company might reclaim vested equity. OpenAI, backed by around $13 billion from Microsoft, has been assessed at over $80 billion.

The alteration unveiled last week also involved retracting a clause that had caused concern, allowing the company to potentially repurchase shares at its “sole and absolute discretion” for the “fair market value.” Prior documents mentioned that “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.”

OpenAI stated in the revised document that it “will refrain from enforcing any provision in employee equity documents mandating equity redemption at fair market value and will update our documents accordingly.”

Former employees employed at competitors will no longer be excluded from official tender offers, per the internal document. They will now be categorized with other former employees.

One area where current employees will retain priority is if a future tender offer becomes oversubscribed, meaning stakeholders aim to sell more shares than investors are willing to purchase. In such instances, “we will give precedence to providing liquidity to current service providers over former service providers,” potentially leading to a “cutback” for those no longer part of the company, OpenAI explained.

By overhauling its tender-offer regulations, OpenAI has taken a significant step in easing employee concerns. Following reports of potential equity clawbacks, OpenAI recently circulated a document, acquired by sources, named “Overview and Recap of OpenAI’s Tender Process,” outlining the company’s historical equity transactions and its future strategies.

Last month, OpenAI announced a reversal of a controversial decision to make former employees choose between signing a perpetual non-disparagement agreement and retaining their vested equity in the company.

However, a notable issue concerning employee equity remains unaddressed in the recent modifications. Previously, OpenAI allowed current employees to partake in “donation rounds,” enabling them to donate a portion of their vested equity to charity, with associated tax benefits. Former employees potentially faced exclusion, as these rounds might only be offered “to active employees and are not guaranteed to occur,” according to messages reviewed earlier. The updated document did not specify whether this policy remains in effect.

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