Press Release

OpenAI Allows Investors To Sell Shares Annually

OpenAI intends to let investors sell a percentage of their shares annually, but the company—which is valued at over $80 billion—is adopting a restricted strategy that has caused several present and former employees to worry about the startup’s ability to control who takes part.

TakeAway Points:

  • OpenAI is allowing staff members to sell some ownership in secondary deals, despite the company’s skyrocketing valuation and lack of an IPO in the near future.
  • Internal memos and sources claim that ex-employees with millions of dollars’ worth of stock are concerned that OpenAI may be able to make them sell their shares.
  • Recently, OpenAI released a paper stating that the tender bids do not include former employees who are employed by rival companies. 

Openai Investors to sell Shares

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 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, 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 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.

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 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 said after the company changed course. “It doesn’t reflect our values or the company we want to be.”

According to 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.

Other Matters of Concern

A former employee, who shared his OpenAI correspondence, 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. 

According to internal messages, 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. 

Much of the discussion around future stock issues will now likely include a new voice, after OpenAI announced on Monday that it had 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, said 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.”

Value of a Stock

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. According to sources, Ex-employees said they’ve asked the company if that means they could lose their stock for nothing.

OpenAI said it’s never cancelled 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.”

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