“The Opaque Investment Empire Making OpenAI’s Sam Altman Rich”, 2024-06-03 ():
…Sam Altman is one of Silicon Valley’s most prolific and aggressive individual investors, managing a sprawling investment empire that is becoming a direct beneficiary of OpenAI’s success. The holdings he controls were worth at least $2.8 billion as of early this year, according to company filings and Wall Street Journal reporting. Much of the portfolio isn’t widely known.
Altman and his venture funds have invested in more than 400 companies, by Altman’s own estimate, including big names such as Stripe, Airbnb and Reddit. [in part due to personal sales from Paul Graham, see later] The holdings are managed by his family office and rival the value and size of some full-blown venture firms.
[leverage] Altman has added to his startup stakes by drawing on a debt line from JPMorgan Chase [!], his longtime personal bank, allowing him to pour hundreds of millions of dollars more into private companies. Altman’s strategy, not previously reported, is rare among venture capitalists given the volatile nature of startup investing, where high percentages of young companies go bust. Taking on such personal levels of debt is a risky gamble.
[This explains how Altman could keep investing in so many startups while having so few known exits: he has taken out enormous loans collateralized by his other stakes. (I had speculated that Silicon Valley Bank might be extending him loans—right mechanism, wrong bank.)]
…Altman dialed up his startup investing in 2019, when he left Y Combinator to run OpenAI full-time. That year, he negotiated the debt line with JPMorgan, pledging his growing portfolio of private startups as collateral through a limited liability company called Altman HoldCo.
The deal allowed Altman for the first time to write personal checks at the scale of a large venture firm, while reducing his reliance on Hydrazine, where he had to share profits with outside investors. In 2022, shortly after he poured hundreds of millions into Helion, Altman also invested $180 million into the life-extension lab Retro. Altman also used the debt line to back a new venture firm he co-founded in 2020 with his brother Max, called Apollo Projects.
A growing number of Altman’s startups do business with OpenAI itself, either as customers or major business partners. The arrangement puts Altman on both sides of deals, creating a mounting list of potential conflicts in which he could personally benefit from OpenAI’s work.
OpenAI is in talks for a deal with Helion, a nuclear-energy startup that is chaired by Altman, in which it would buy vast quantities of electricity to provide power for data centers.
The 11-year-old company is planning to build nuclear-fusion power plants, a technology that doesn’t yet exist in a usable format. Altman invested $375 million in Helion in 2021, his largest startup check ever written. The startup signed on Microsoft, its first customer and OpenAI’s largest investor, last year.
Altman has recused himself from the deal talks between OpenAI and Helion, which haven’t been previously reported.
Last month, OpenAI announced a partnership with Reddit in which it would pay to bring the messaging site’s content to ChatGPT and other AI products. Altman and entities he controls own 7.6% of Reddit, making him the third-largest outside shareholder, and he briefly served as its CEO in 2014.
Reddit’s stock shot up 10% after the announcement, boosting Altman’s stake by $69 million to $754 million. Altman didn’t lead the partnership talks, OpenAI said in a blog post.
Altman’s more recent investments have focused on companies that aim to capitalize on the artificial intelligence boom being driven by OpenAI. Apex Security, in which Altman invested an undisclosed amount last summer, aims to sell cybersecurity software to companies using AI products such as ChatGPT.
He also invested an undisclosed amount in Exowatt, a startup tackling the clean-energy needs of big data centers used by AI companies.
…He is also an investor in Limitless, an AI startup that offers a device worn like a necklace that can record and transcribe conversations and also uses OpenAI’s software.
The founder of Limitless, Dan Siroker, said Altman invested in his company, formerly called Rewind, long before it began using OpenAI’s technology. “He is almost a victim of his own success”, Siroker said. “He’s built such a meaningful company, and he’s invested in smart people. It’s almost impossible to imagine how those smart people wouldn’t have found a way to integrate with OpenAI.”
…Through a spokesperson, Altman declined to comment on any potential conflicts of interest between OpenAI and his personal investments.
Altman has “consistently followed policies and been transparent about his investments”, said Bret Taylor, the chairman of OpenAI’s board. “Sam is fully focused on his role as CEO. We carefully manage any potential conflicts and always put OpenAI and our mission first”, Taylor said. “Our fully independent audit committee reviews all potential conflicts involving directors and officers to ensure the best outcomes for OpenAI.”…Public company boards typically bar executives from taking large stakes in outside ventures.
…Some directors who ousted Altman felt he was giving them so little information about the size and scope of his startup holdings that it was becoming impossible to understand how he might personally benefit from deals the company pursued, people familiar with their thinking said.
…OpenAI is in the process of overhauling its governance structure, though it hasn’t announced any changes.
…Among the new provisions established following Altman’s return was a strengthened conflicts policy and a new, independent audit committee that reviews potential conflicts involving directors and officers. The board hasn’t publicly disclosed any details about the conflicts policy.
…In March 2023, the prominent venture capitalist Reid Hoffman, who co-founded the rival AI company Inflection AI the previous fall, said he stepped down as a director of OpenAI’s board to avoid the perception that he and his venture firm Greylock were profiting off the software sold by OpenAI, called application program interfaces, or APIs. [He was pushed out by Altman.]
[first board coup attempt] …In April 2023, Altman suggested to board members that Adam D’Angelo, the CEO of the question-and-answer site Quora, step down from the board after Quora began developing its own generative AI chatbot called Poe, which is also an OpenAI customer, people familiar with the discussions said. [cf. Altman trying to oust D’Angelo’s ally Toner as well] Other directors disagreed that the move was necessary. D’Angelo is the only director still on the board among those who temporarily ousted Altman in November.
Investment empire: This article is based on interviews with dozens of founders, investors and friends who are close to Altman, as well as investment filings.
…Altman began startup investing while running Loopt, the social-networking startup he founded shortly before dropping out of Stanford University in 2005. While Altman didn’t have deep sources of cash, he got access to up-and-coming startups thanks to his mentor Paul Graham, the co-founder of the influential venture firm Y Combinator, which had invested in Loopt.
Altman had luck with his second-ever startup investment. In 2009, Graham introduced him to John & Patrick Collison, two young Irish entrepreneurs who were dreaming up a new payments processing startup called Stripe. Altman invested $21,114.54$15,0002009 for 2% of the company.
Stripe is now the third-most valuable U.S. startup outside SpaceX and OpenAI, with a valuation of $65 billion. Altman’s stake, which is now smaller than 2%, marks his most successful investment to date. Last year, Stripe also announced a deal to help commercialize OpenAI’s technology.
In 2012, Altman sold Loopt and used the small profits to help raise his first venture fund, named Hydrazine after the chemical used for rocket fuel. Hydrazine’s largest outside investor was the billionaire PayPal co-founder Peter Thiel, another early mentor of Altman’s.
In 2014, Altman became president of Y Combinator. By then he had already invested in 40 companies, he wrote in a blog post, adding that 5 of them increased in value by 100× or more.
…Altman continued to run Hydrazine even while running Y Combinator—an unconventional setup in Silicon Valley, where venture fund leaders are typically barred from managing their own venture funds in order to stay focused on making money for their firms. The arrangement fueled allegations of hypocrisy among other partners at Y Combinator, including its current president Garry Tan, who were banned by Altman from also managing their own venture funds, according to people familiar with the matter. [partially contributing to being fired from Y Combinator] Tan declined to comment.
[Paul Graham personal sale] Hydrazine bought out a portion of startup shares owned by Graham, a transaction that gave Altman stakes in some of the hottest companies backed by Y Combinator. The sale hasn’t been previously reported.
…Founders came to revere Altman’s bold thinking and decisive style. He often made the decision to invest on the spot—sometimes before founders even finished pitching their companies. “Sam was more aggressive with his investments than most”, said Walker Williams, the founder of Teespring, a social commerce startup backed by Hydrazine. “He is aiming for a grand slam every time. He was dreaming about how Teespring would be a company that took over the world.”
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The Opaque Investment Empire Making OpenAI’s Sam Altman Rich