🚀 Social Entrepreneurship: What a $157 Billion Startup Can Teach Us - By Jennifer Sato
By Light-it, in collaboration with Jennifer Sato, Founder & President @HealthTech Build
This startup’s story is worth following. Launched in 2015 as a nonprofit, its mission is big: ensuring that safe artificial general intelligence (AGI) is developed and benefits humanity. As a nonprofit, it raised $130.5 million through donations but needed more capital to scale. In 2019, it formed a hybrid structure with a for-profit arm, added a major tech company to its cap table, and ultimately raised $13 billion.
This is OpenAI’s story, and it has many lessons for entrepreneurs facing comparable challenges – entrepreneurs navigating the tension between staying true to a social mission and accessing the capital necessary to scale and sustain a venture.
Purpose and Profits: Reconcilable or Not?
Venture capitalist and entrepreneur Marc Andreessen has said that the best philanthropy is to create great for-profit companies. It’s not difficult to see the logic in this. A for-profit venture can access investors looking to participate in profits. Big investments create big opportunities to scale and sustain a venture and ultimately deploy money philanthropically back into society.
That’s great, but social entrepreneurs lead with a mission to accomplish a specific social impact and may face these hard questions:
How do I simultaneously pursue growth and maintain trust and credibility in my commitment to the mission?
How do I ensure mission-aligned decisions when investors or other stakeholders might push for compromises that lead to mission drift?
These challenges seem to have been at the heart of the crisis that played out in 2023 when OpenAI’s non-profit board abruptly removed CEO Sam Altman. The board reportedly removed him to safeguard the mission due to "a breakdown in trust.”
This caused immediate backlash from employees and investors, who credited Altman with leading OpenAI’s success. Microsoft offered Altman and other key employees positions in its AI division.
Altman was reinstated shortly thereafter, and the board was ultimately restructured with a non-voting seat given to Microsoft (later surrendered in 2024). Still, the drama demonstrates the challenges of balancing accountability to a mission with the agile leadership needed in a competitive marketplace.
We may never know the details, but perhaps the board was concerned about mission drift – Altman prioritizing the rapid commercialization of the technology over safe deployment. Or perhaps the concern was governance – Altman not providing sufficient transparency to the board in decision-making. Regardless, it’s clear that Microsoft’s influence as a major investor and strategic partner is mighty, and the nonprofit board’s oversight and hybrid structure do not change this.
Consider these questions:
What governance structures or advisory mechanisms can be established to safeguard the mission and guide decision-making as a venture evolves?
Who are the key stakeholders whose trust is essential to sustaining a venture's structure, leadership, and resources? Consider the influence of board members and contributions of investors, sponsors, co-founders, and key employees.
What are the potential consequences of diminished trust with any of these stakeholders?
Weigh the Tradeoffs: Nonprofit versus For-profit
OpenAI’s early accomplishments as a nonprofit were remarkable. Donations of $130.5 million were used to publish leading research, achieve breakthroughs in reinforcement learning and NLP, and build early AI models. Co-founders Elon Musk and Sam Altman, Reid Hoffman, Peter Thiel, YC Research, and others donated significant capital for these activities.
However, its mission's capital-intensive nature and scale required more capital and computational resources than could be achieved with donations, and the technology's commercial potential was promising.
In 2019, a “capped profit” arm was formed to allow investments with returns limited to a predefined multiple of the investment (e.g., 100x or a specific cap). Once the cap is reached, excess profits are reinvested into OpenAI’s mission.
The intent of this structure is to ensure that financial incentives don’t overshadow broader ethical goals. In 2019, Microsoft invested $1 billion and additional amounts through 2024, bringing its investment up to an estimated $11 billion.
Impact is the driving force of any social mission, but entrepreneurs will be well-served to answer both of these questions. Failing to assess if a social venture can operate on a self-sustaining commercial basis is a lost opportunity for broader impact and scalability.
Conduct market research and financial modeling as rigorously as a traditional for-profit venture would. Understand if there’s a path to a long-term sustainable and profitable revenue model. If there isn’t, understand the ongoing philanthropic contributions needed to scale and sustain the venture. You’re better off doing this work upfront and articulating the vision and how the funding strategy supports it rather than waiting for philanthropic sources and/or investors to make assumptions and give you an answer you may not like.
Consider these questions:
Have I tested the venture’s value prop through market research – both the perceived value of its potential impact and the appetite for its monetizable product/service (if applicable)?
If there is a monetizable product or service, have I confirmed there are economic buyers willing and able to pay for the product or service sufficient for a profitable model? If not, are there options for subsidies that could support the creation of a model with acceptable profit margins?
What is the desired scale of impact, how quickly do I want to achieve it, and how much capital and resources are needed to achieve this? Have I created the financial model over the next 2-5 years?
What types of philanthropic contributions or investors do I want to attract, and do I understand their expectations and time horizons?
Do I have a clearly articulated vision with which to engage advisors for legal and structural recommendations?
Without a near-term path to a profitable commercial model, you might assume a full nonprofit structure is the right choice for a social venture. Or you might assume that a traditional for-profit structure is the right choice because you believe that fundraising will be easier. You may or may not have considered other options such as “benefit corporations” or a range of potential hybrid structures.
Structural decisions are highly contextual, so it’s a good idea to engage with advisors sooner rather than later to understand the nuances relevant to your venture. Just remember that the quality of the advice you receive will only be as good as the clarity of your value prop, intended scale of impact, and timeline.
A Note On Complexity
OpenAI is now working to restructure as a full for-profit company to enable greater access to the capital needed to sustain its rapid growth and innovation. This is a departure from OpenAI’s original mission-driven framework with nonprofit oversight.
The complexity of a restructure will be significant and will likely take years to complete. Assuming the company decides to convert to traditional stock (not necessarily a given), there are many open questions: With the complex waterfall provisions of its capped-profit model as well as valuation complexities, how will this translate into stock ownership percentages? What does this mean for Microsoft? Will there be antitrust considerations? What will governance look like?
HealthTech Build & Light-it Collaboration
Jen Sato is Founder & President of HealthTech Build, a nonprofit organization that catalyzes collaboration within the healthcare ecosystem.
HealthTech Build collaborates with accelerators and state agencies and has built a large community of entrepreneurs, technologists, clinicians, industry leaders, and researchers in healthcare. It leads numerous in-person educational and networking forums such as panel events, workshops, and roundtables in the Boston area.
In 2023, HealthTech Build was awarded a grant from Light-it to build the infrastructure for an online educational and community platform. In 2024, HealthTech Build launched HealthTech Build Studio, an early-stage spin-off that will leverage this platform to increase HealthTech Build’s reach and impact via the creation of virtual modules to improve access and understanding of leading peer-reviewed studies in healthcare. The focus areas of these modules will include the implications of AI in healthcare on fairness & equity, human-AI collaboration, and transparency in AI healthcare tools.
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