Sam Altman Might Have Just Pulled Off the Coup of the Decade

> At this point, Microsoft will have invested a total of $13B in OpenAI. Moreover, new VCs are in on the deal by buying up shares of employees that want to take some chips off the table.

> However, the astounding size is not the only extraordinary thing about this deal.

> First off, the ownership will be split across three groups. Microsoft will hold 49%, VCs another 49%, and the OpenAI foundation will control the remaining 2% of shares.

> If OpenAI starts making money, the profits are distributed differently across four stages:

> 1. First, early investors (probably Khosla Ventures and Reid Hoffman’s foundation) get their money back with interest.

> 2. After that Microsoft is entitled to 75% of profits until the $13B of funding is repaid

> 3. When the initial funding is repaid, Microsoft and the remaining VCs each get 49% of profits. This continues until another $92B and $150B are paid out to Microsoft and the VCs, respectively.

> 4. Once the aforementioned money is paid to investors, 100% of shares return to the foundation, which regains total control over the company.

Wait for the first publicly traded opportunities to take part in that hype cycle.

1: That models will become commodities and all value will be captured by who owns the interface to the customer.

2: That it is an "absolutely crazy" deal because after paying ~$250B back to investors, OpenAI will own "100% of whatever was created".

If 1 holds true, then it seems to be a good deal for Microsoft. Especially if OpenAI uses their $10B in funding to buy compute power from Azure at market price.

Microsoft has a shot at dethroning Google as the world's answer machine and becoming the world's AI datacenter.

Running the world's answer machine is a $150B/year business for Google.

Being the world's AI datacenter is probably going to become a $100B/year business too.

A startup's goal is a special kind of scalable business designed to burn a reasonable (per risk) amount of cash (by billionaire standards) to experiment (in series rounds) if the business can blow-up into something big with a giant exit. There is a metric crapton^9 amount of cash held by the top, but nowhere "safe" to put it because VC is itself a "lifestyle" business, e.g., there's little way to efficiently scale relationship-building, due-diligence (which is often excessive and pointless), and oversight. :)

It would not be possible to cloud host an operation this reliant on GPU power …. the costs would be way too high compared to self hosting. GPUs in the cloud are very expensive, have availability issues, and tend to be behind the state of the art consumer GPUs.