OpenAI Reverses Course, Allowing Equal Secondary Share Sales for Current and Former Employees
OpenAI, the leading artificial intelligence research company, has made a significant change to its stock sale policies, eliminating previous restrictions and now allowing current and former employees equal access to annual tender offers. This shift comes after concerns arose regarding the company’s past approach, which some shareholders viewed as creating inequity and potentially hindering access to liquidity.
Key Takeaways:
- OpenAI will now allow both current and former employees to participate equally in annual tender offers, removing the previously existing disparity in sales limits and offering timelines.
- The company has also reversed a provision that allowed them to repurchase shares at their discretion, addressing previous concerns about potential forced buybacks at less than fair market value.
- Former employees who now work at competing companies will be included in the same category as other former employees, further removing barriers to secondary share sales.
- This change will improve equity for former employees who, due to the company’s rapid growth and valuation, face difficulty in finding ways to monetize their vested shares.
The new policy is a response to growing concerns among employees and shareholders about the lack of liquidity options for their stock holdings. OpenAI, with its soaring valuation driven by the success of products like ChatGPT, has become a "unicorn" in the tech industry, further exacerbating the need for secondary market access.
"The change is significant for employees because it addresses concerns about their ability to get liquidity for some of the millions of dollars worth of equity they own," said a person familiar with the matter, speaking on the condition of anonymity. "With no initial public offering on the horizon and a price tag that makes the company prohibitively expensive for would-be acquirers, secondary stock sales are the only way in the near future for shareholders to pocket a portion of their paper wealth."
Previously, OpenAI had implemented policies that granted preferential treatment to current employees in secondary share sales. These policies included a discrepancy in sales limits, with former employees facing much lower limits than their current counterparts. Additionally, former employees often experienced lengthy delays in accessing sales, which further hampered their ability to liquidity.
The company’s decision to equalize these policies is a positive step towards fostering greater fairness and ensuring better access to liquidity for all shareholders. This will help address concerns about employee equity and foster a more equitable environment for stock ownership within the company.
"This is great news for employees. The previous policies really put a cap on our ability to access liquidity," said a former OpenAI employee who declined to be named. "With this change, everyone will have a fairer shot at selling their shares and realizing the value of their work at OpenAI."
However, the new policy also includes a caveat: in the event of an oversubscribed tender offer, OpenAI will prioritize current employees over former employees for liquidity. This means that former employees could be subject to potential "cutbacks" if the demand for shares exceeds the available supply.
Despite this caveat, the overall impact of OpenAI’s policy reversal is positive for former employees. The change removes significant roadblocks to secondary share sales and significantly improves their ability to access liquidity. This will help to retain talent, boost employee morale, and improve the company’s overall perception as a responsible employer.
OpenAI’s recent actions surrounding employee equity highlight the complexity and importance of managing stock ownership in a rapidly growing, privately held company. As the company continues to achieve milestones and attract substantial investments, addressing the concerns of its shareholders, both current and former, will be crucial for maintaining its position at the forefront of the AI revolution.
