Sam Altman's Little-Known Holding Company Strategy to Billions
The Secret Legal Strategy Sam Altman is Using to Profit Big on the Non-profit Open AI.
Ever feel this way?
You see people making moves and doing things that don't quite make sense on the surface. Like they're getting away with something–doing well, but you don't know how.
It's the feeling that you're missing something underneath it all.
You're not alone.
We all feel that way about domains we're not experienced in. We get the sense that hidden layers beneath the surface influence decisions and actions in ways that aren't immediately clear.
Maybe even magical.
I send these Memos to help you see through the various layers of hidden moves. To reveal the business, (mostly) legal, and strategic plays being made.
I know the magic and wonder will disappear, but you'll no longer be the one sitting on the sidelines and watching in awe.
Instead, you’ll be the one on stage–doing the slights of hand beneath the surface.
Well, that’s my hope.
So, let's do a reveal with a recent article I read in the Wall Street Journal about Sam Altman, CEO of Open AI.
You know, the guy behind ChatGPT. (Here’s his personal site if you want to deep dive on him a bit.)
The Murky Investment Empire Making Sam Altman RICH
I just read an article in the Wall Street Journal called "The Opaque Investment Empire Making OpenAI's Sam Altman Rich." It dissects the complex financial maneuvers and expansive investment portfolio of Sam Altman, the CEO of OpenAI.
The Big Picture: Altman only makes a $65,000 salary as CEO of OpenAI. But he has indirectly amassed a substantial fortune through his vast investment portfolio and its relationship to OpenAI.
The article raises questions about whether this wealth–managed through his holding company and various venture funds–is a potential conflict of interest and how it challenges the effectiveness of traditional corporate governance.
Why? Because they’re letting it happen.
The article highlights three primary areas of concern:
Sam Altman's Dual Roles:
Sam Altman is simultaneously one of Silicon Valley’s most talked about CEOs and most prolific individual investors. While he claims no financial stake in OpenAI to avoid conflicts, his vast investment empire, managed through his family office and various venture funds, is valued at approximately $2.8 billion. This portfolio includes 400+ companies with some high-profile companies like Stripe, Airbnb, and Reddit–but it also includes a large number of AI related companies. (Hmmm, I wonder if there is something to this–controlling the main company and also having interests in various other industry related ancillary companies.)
Potential Conflicts of Interest:
It’s easy to see that some of Altman's investments intersect with his role at OpenAI, creating scenarios where his financial interests could benefit from OpenAI's business decisions. (Of course this makes sense.)
Case in point, Helion, a nuclear energy startup chaired by Altman, is in talks with OpenAI for a significant energy deal. Although Altman has recused himself from such discussions, the potential for conflicts remains a concern. (There you go, at least he didn’t vote.)
Corporate Governance Challenges:
The article underscores the challenges Altman's investment strategy poses in corporate governance. Typically, public company boards restrict executives from holding substantial stakes in external ventures to prevent conflicts of interest. (Ok, but I guess not here, especially after seeing what happened to the last board that challenged him.)
The point is that this raises questions about the effectiveness of traditional governance models in managing such complex relationships.
However, to those who look deeper, this article offers profitable insights into holding companies and their strategic use in a range of similar situations.
Holding Companies
Altman's use of holding companies to manage his investments provides a nuanced glimpse into the advantages and risks associated with this strategy.
Ideally, holding companies can offer a layer of separation between an individual's operational role and financial interests, theoretically mitigating direct conflicts. (Ahh, I see this through the chart I drew.)
However, as seen in Altman's case, they can also obscure the true extent of personal economic interests, complicating transparency and accountability. (It’s described as “holdings”–just a big bubble of stuff owned by multiple holding companies and venture funds, owned by his HoldCo., owned by him. :). I smile because I do this for clients all the time!)
Its obvious that the potential for conflicts of interest in Altman's dual roles is significant.
Even with recusal from specific negotiations, these overlapping interests can create situations where decision-making is influenced, consciously or not, by personal financial gains.
But, he’s getting away with it–and on the path to make millions–scratch that–I mean Billions!
What is he doing? (With the help of good lawyers, of course.)
So what hidden strategies can we reveal that you can potentially use?
I’m going to tell you the three key strategies that Altman is using to navigate potential conflicts of interest inherent in his various roles as CEO, investor, and potential strategic partner.
Strategy 1: Transparency
Transparency is the cornerstone of ethical business practices.
Everyone will agree with this. By openly disclosing all relevant information, you build trust and mitigate potential conflicts of interest. Or at least, feeling that way. Its how you protect people from later claiming they didn’t know what you were doing. (Yeah, but I know they’re still going to.)
Eventhough people will end up saying whatever they want, it doesn’t mean you should skip this step. So, here ‘s what you do:
Full Disclosure: Clearly outline the who, what, when, where, how, and why of the situation. This means sharing all details in writing and ensuring they are acknowledged by everyone involved. If you think they don’t need to know–you’re wrong. Just tell them. If they don’t need to know, it won’t matter. If they do, well, you played it safe. (I figure better safe that sorry is good policy.)
Documentation: Maintain thorough records of all disclosures. This not only protects you legally but also reinforces your commitment to transparency. In the end, every case is about “proof creating truth,” and the quality of your documentation, dictates your truth.
Regular Updates: Keep all parties informed about changes or developments. Regular communication helps maintain trust and prevents misunderstandings. I’ve found that creating a scheduled status meeting or written update works best.
The point is that transparency fosters trust and preempts potential conflicts by ensuring that all parties are not only fully informed and on the same page but feel that way. (Yesss, feeeeelings matter.)
Strategy 2: Explanation
Beyond transparency, it's crucial to explain the benefits, risks, and alternatives of any decision or action. This best involves a detailed written document that helps everyone understand the reasoning behind your moves.
Well, you can make sure they understand, but you explained it to them!
How?
Articulate Benefits and Risks: Clearly outline the advantages and potential downsides of the decision. Use a Pro/Con list to detail each aspect. Do it in a formal written disclosure, prepare a presentation, or include them in the minutes of a formal meeting. If you can’t do that, at least send an email and copy yourself and everyone else that should know. Just do something and make sure it’s in writing. (Proof is truth)
Alternatives: Discuss other options and why they were ultimately not chosen. This shows thorough consideration and due diligence. Again, make sure you document it!
Unknowns: Acknowledge any uncertainties or unknown factors. This honesty helps manage expectations and prepares the group for potential outcomes.
A comprehensive explanation helps everyone understand the rationale behind acknowleding and accepting the decison made. (Yeah, they knew what they were doing.)
Strategy 3: Recusal
In situations where conflicts of interest are unavoidable, recusal is a powerful strategy. This means stepping back and not participating in discussions or decisions where you have a personal stake. That’s the part where someone says, “I abstain from this vote.”
Here’s how you do it.
Identify Conflicts: Proactively identify situations where your interests could conflict with your professional duties.
Formal Recusal: Officially step back from decision-making processes in these situations. Ensure that this recusal is documented and communicated to all relevant parties.
Delegate: Assign the decision-making authority to an impartial party. This ensures that decisions are made objectively and without bias.
Recusal safeguards the integrity of the decision-making process by eliminating any perception of bias or self-interest.
So, Sam Altman and the other “players” don’t have to be the only ones making these moves. And getting away with it–legally.
You can too if you learn what’s really going on. And adopt strategies like transparency, explanation, and recusal.
Like Sam Altman, you might be able to make what is supposed to be charitable and non-profit–profitable. (Of course, legally.)
That is all.
Have good remainder of the week.