Sam Altman, the former CEO of OpenAI, was embroiled in a conflict of interest when the company signed a deal to buy $51 million worth of chips from a startup that he had personally invested in.
The startup, Rain AI, is developing a new type of chip that is designed to mimic the human brain. Altman invested in the company in 2018, and he was listed as a backer on the company’s website just recently. And this is raising concerns about a possible conflict of interest for one of the main names in the AI landscape.
Rain AI, situated less than a mile from OpenAI‘s San Francisco headquarters, is developing a neuromorphic processing unit (NPU) aiming to emulate human brain features. OpenAI’s 2019 nonbinding agreement to invest $51 million in Rain’s chips, revealed in recent investor disclosures, remains pending.
The letter of intent, not previously reported, disclosed that OpenAI’s spokesperson, Kayla Wood, stated they have not advanced with Rain but are open to future discussions. Rain’s CEO, William Passo, expressed anticipation for future talks with OpenAI and others on the potential of their technology in shaping the future of AI.
This arrangement illuminates the intersection of OpenAI CEO Sam Altman‘s personal investments with his OpenAI role. Altman’s diverse pursuits, including his previous leadership at Y Combinator, played a role in his recent dismissal from OpenAI, according to insiders.
The Rain AI deal further highlights OpenAI’s willingness to allocate substantial funds to secure chip supplies for groundbreaking AI initiatives. Altman has publicly decried the scarcity and high costs of AI chips, emphasizing the vital role of new chip designs in advancing AI progress.
Rain disclosed to investors that Sam Altman, reinstated as OpenAI CEO last month after a brief dismissal, personally invested over $1 million in the company. While Altman’s return to OpenAI mitigates potential conflicts, it’s noteworthy that during his tenure, OpenAI had committed to a $51 million investment in AI chips from Rain AI, a startup where Altman holds personal investments.
The ambiguity lies in whether Altman influenced OpenAI’s decision to engage with Rain AI for chip purchases.
Nevertheless, the scenario raises concerns about potential conflicts of interest, as the CEO of one company (OpenAI) could indirectly benefit financially from another (Rain AI) in which he has personal investments.
Earlier this year, Rain showcased its advancements to potential investors, projecting a milestone achievement this month with the potential ‘taping out’ of a test chip – a crucial step indicating readiness for fabrication. However, recent leadership reshuffles and investor changes occurred following a mandate from a U.S. government body overseeing national security risks. The body reportedly required Prosperity7 Ventures, a Saudi Arabia–affiliated fund that led a $25 million fundraising campaign for Rain in 2022, to divest its stake in the company.
This mandated removal of the fund, reported by Bloomberg , adds to Rain’s challenges in bringing its innovative chip technology to market. The forced change may potentially impact the timeline for fulfilling OpenAI’s $51 million advance order. Grep VC, based in Silicon Valley, acquired the shares.
The U.S. government’s concern regarding Prosperity7’s deal with Rain also raises questions about another initiative by Sam Altman to boost the global supply of AI chips.
Altman has engaged with Middle Eastern investors in recent months to explore raising funds for a new chip company, aiming to diversify beyond the current dependence on Nvidia GPUs and specialized chips from Google, Amazon, and a select few suppliers. This information was shared by two anonymous sources familiar with private discussions.
Prosperity7’s investment in Rain triggered scrutiny from the Committee on Foreign Investment in the United States (CFIUS), a body with the authority to intervene in deals deemed a threat to national security.
CFIUS has long been vigilant about preventing China from accessing advanced U.S. semiconductors, and it has increasingly expressed concerns about China using intermediaries in the Middle East to covertly gather information on critical technology. Nevena Simidjiyska, a partner at the law firm Fox Rothschild specializing in CFIUS reviews, explained that the government’s focus is not solely on financial aspects but on controlling access and power wielded by foreign entities.
While Rain faced no apparent issues with a small seed investment from the venture unit of Chinese search engine Baidu, the larger investment from the Saudi-affiliated Prosperity7 raised significant concerns. Prosperity7, a unit of Aramco Ventures and part of state-owned Saudi Aramco had the potential to involve Rain closely with the Saudi government, prompting heightened scrutiny.
Megan Apper, a spokesperson for CFIUS, asserted the panel’s commitment to taking necessary actions to safeguard U.S. national security but adheres to legal practices by not publicly commenting on transactions under review.