OpenAI Brain Drain: A Guide for VCs Looking for the Next AI Unicorn - AI&YOU #69

Stat of the Week: OpenAI's website openai.com records approximately 1.7 billion monthly visits as of July 2024, ranking as the 20th most visited website globally.

In the high-stakes world of artificial intelligence, talent is the ultimate currency. The recent exodus from OpenAI isn't just a reshuffling of the deck—it's a potential goldmine for savvy venture capitalists. As we witness one of the most significant talent migrations in recent tech history, the question isn't just who's leaving, but where they're going and what they'll build next.

In this week's edition of AI&YOU, we are exploring insights from three blogs we published on the topic:

• OpenAI Brain Drain: A Guide for VCs
• 5 Former and Current OpenAI Employees Every VC Should Follow
• Elon Musk vs. OpenAI Could Define AGI and Shake Microsoft

Meet the "Open AI Mafia" - ?AI&YOU #69

September 13, 2024

OpenAI, once the undisputed leader in cutting-edge AI research, is experiencing a seismic shift. This isn't your run-of-the-mill employee churn; it's a mass departure of some of the brightest minds in AI. For VCs, this represents a rare opportunity to get in on the ground floor of what could be the next generation of AI unicorns.

The implications of this exodus extend far beyond OpenAI itself. As these brilliant minds disperse across the industry, they carry with them not just knowledge and expertise, but also the potential to spark entirely new innovations and companies. For VCs, understanding this migration is crucial to identifying the next big opportunities in AI.

The Great Cash-Out: Following the Money Trail

A main part of this talent exodus was OpenAI's policy reversal on secondary share sales.

Here's what VCs need to know:

• OpenAI has lifted restrictions on share sales, allowing both current and former employees to participate equally in annual tender offers.
• The sales limit for all sellers, including former employees, has been standardized, removing previous disparities.
• Non-disparagement clauses have been removed from employment agreements for vested employees, potentially leading to more candid insights into OpenAI's inner workings.

For VCs, these changes create a perfect storm of opportunity. Many ex-OpenAI employees are now sitting on significant liquidity, giving them the resources to bootstrap new ventures. The removal of non-disparagement clauses means these individuals can speak more freely about their experiences and ideas, potentially leading to more transparent and innovative startups.

But why is tracking these cash-outs so crucial for VCs?

First, it indicates which employees have the financial freedom to take risks on new ventures. These aren't just potential founders; they're founders with the means to self-fund initial stages of development, potentially leading to more mature pitches when they do seek VC funding.

Secondly, the timing of cash-outs can provide valuable insights. A cluster of high-level employees cashing out simultaneously might signal upcoming technological shifts or changes in company direction that could inform investment strategies.

Lastly, these cashed-out employees represent a valuable network. Even if they don't found companies themselves, they're likely to become angel investors or advisors to new AI startups. Building relationships with them now could give VCs early access to promising deals down the line.

By closely monitoring these financial movements and policy changes, VCs can position themselves to capitalize on the next wave of AI innovation, potentially identifying the founders and ideas that will shape the future of the industry.

5 Key OpenAI Figures to Follow

1?? John Schulman: Reinforcement learning expert who co-founded OpenAI and played a crucial role in developing ChatGPT. Recently joined Anthropic to focus on AI alignment, signaling a growing emphasis on AI safety in the industry.

2?? Greg Brockman: OpenAI co-founder and former CTO, known for his hands-on leadership and advocacy for AI democratization. Currently on sabbatical from OpenAI, his next moves could significantly influence AI development trends.

3?? Peter Deng: Former VP of Consumer Product at OpenAI, with a track record of driving product innovation at Facebook, Instagram, and Uber. His brief tenure and departure from OpenAI highlight the dynamic nature of the AI talent landscape.

4?? Ilya Sutskever: OpenAI's former Chief Scientist, instrumental in developing GPT models. Recently founded Safe Superintelligence (SSI), focusing on creating AI systems that align with human values - a potential new frontier for AI research and investment.

5?? Jan Leike: AI safety expert who led OpenAI's Alignment Team. Now at Anthropic after leaving OpenAI due to concerns over safety culture, his work could shape future AI safety standards and regulatory discussions.

The "OpenAI Mafia" Phenomenon

The tech world has seen this before: a group of talented individuals from a single company dispersing to create an outsized impact on the industry. The most famous example is the "PayPal Mafia," a term coined for the group of former PayPal employees and founders who went on to create and invest in numerous successful tech companies.

To understand the potential of an "OpenAI Mafia," let's look at what the PayPal Mafia achieved:

• Elon Musk founded SpaceX and Tesla
• Peter Thiel co-founded Palantir and became a prominent venture capitalist
• Reid Hoffman founded LinkedIn and became a partner at Greylock
• Steve Chen, Chad Hurley, and Jawed Karim founded YouTube
• Jeremy Stoppelman and Russel Simmons founded Yelp
• David Sacks founded Yammer

These individuals not only created billion-dollar companies but also became influential investors and advisors in Silicon Valley. Their shared experience at PayPal created a powerful network that continued to collaborate, invest in each other's ventures, and shape the tech industry for years to come.

We may be witnessing the birth of a similar phenomenon with the "OpenAI Mafia."

As OpenAI alumni disperse across the AI landscape, they're not just joining existing companies – they're founding new ones, becoming angel investors, and shaping the direction of AI research and development.

For VCs, this presents a unique opportunity. By tapping into this network early, you can gain access to a pipeline of high-potential startups and founders. The "OpenAI Mafia" is about the collective potential of a group that has been at the forefront of AI development.

These moves are likely just the beginning. As with the PayPal Mafia, we may see these individuals start multiple companies over the coming years, invest in each other's ventures, and continue to collaborate in various ways.

Remember, the full impact of the PayPal Mafia wasn't immediately apparent – it unfolded over years. The same may be true for the OpenAI alumni. By investing in this network now, you're not just betting on individual startups, but on a group of people who have the potential to shape the future of AI for years to come.

Identifying the Next AI Unicorns

As you track the movements of OpenAI alumni, pay close attention to the problems they're choosing to solve and the approaches they're taking. These choices can provide valuable insights into where the field is heading.

Look for founders who are not just technically brilliant but also have a clear vision for how their technology can be applied to real-world problems. The most successful AI companies will likely be those that can bridge the gap between cutting-edge research and practical applications.

Also, keep an eye out for startups that are tackling the challenges of AI development itself – tools for better training, more efficient models, or improved safety measures. As AI becomes more ubiquitous, the picks-and-shovels plays in this space could be just as valuable as the headline-grabbing AI applications.

Elon Musk vs. OpenAI Could Define AGI and Shake Microsoft

In another move that the AI community should be paying attention to, Elon Musk has reignited his legal battle against OpenAI, Sam Altman, and Greg Brockman. This is a case that could fundamentally shape the future of artificial intelligence, particularly in defining Artificial General Intelligence (AGI) and its commercialization.

At the heart of this lawsuit lies a question that has long haunted the AI community: What exactly is AGI, and who gets to profit from it? As we dive into the details of this legal drama, we'll explore how the outcome could redefine the AI landscape and potentially upend one of the most significant partnerships in the tech world – the collaboration between OpenAI and Microsoft.

The Central Issue: Defining AGI

At the core of this legal battle is the elusive concept of AGI. Unlike narrow AI systems designed for specific tasks, AGI refers to a hypothetical AI system that can understand, learn, and apply its intelligence broadly and flexibly, similar to human intelligence.

The lawsuit brings this theoretical concept into sharp legal focus. Musk's team argues that OpenAI's contract with Microsoft specifies that the tech giant would no longer have rights to OpenAI's technology once AGI is achieved. This puts the court in the unprecedented position of potentially having to legally define AGI – a task that even AI experts struggle to agree on.

Current expert opinions on AGI vary widely. Some believe we're decades away from achieving it, while others argue that current large language models are already showing signs of general intelligence. The lack of consensus in the scientific community makes the prospect of a legal definition both intriguing and concerning.

The Microsoft Factor

Microsoft's deep partnership with OpenAI, involving billions in investment, is now under scrutiny. The lawsuit alleges that this partnership violates OpenAI's original open-source ethos and compromises its mission to develop AGI for the benefit of humanity.

The AGI exclusion clause in OpenAI's agreement with Microsoft is particularly contentious. This clause supposedly restricts Microsoft's access to AGI technology once it's developed. However, the ambiguity in defining AGI makes this clause a potential powder keg.

If the court rules in Musk's favor and provides a legal definition of AGI, it could have far-reaching consequences for Microsoft. Depending on how AGI is defined, Microsoft could find its substantial investment in OpenAI at risk, potentially losing access to critical AI technologies that it has been integrating into its products and services.

This case doesn't just pit Musk against OpenAI; it places Microsoft in a precarious position, potentially jeopardizing one of the most significant AI partnerships in recent years. As the lawsuit unfolds, the tech industry watches with bated breath, aware that the outcome could reshape the competitive landscape of AI development and commercialization.

The Bottom Line

As the case unfolds, it will likely intensify debates about the ethical development of AI, the role of profit in technological advancement, and the need for clear governance structures in emerging technologies.

For the AI community, policymakers, and the public, this case serves as a critical reminder of the complex challenges at the intersection of technology, ethics, and law. It underscores the need for ongoing dialogue and collaboration to ensure that the development of transformative technologies like AGI aligns with broader societal interests.

Regardless of the outcome, this lawsuit marks a significant moment in the evolution of AI. It prompts us to critically examine our approach to developing and governing potentially world-changing technologies. As we await the court's decision, one thing is clear: the implications of this case will resonate far beyond the courtroom, potentially reshaping the future of artificial intelligence and its role in our society.

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