Elon Musk Sues OpenAI

Presented by the GOTO Market Institute

Founders are charging investors for meetings, Musk is jumping into a new lawsuit, and VCs are calling certain startups “uninvestable”. In other words, it’s Tuesday. Here’s what’s happening in SaaS this week.

• Elon Musk sued OpenAI CEO Sam Altman, alleging their partnership with Microsoft betrays OpenAI's founding mission to benefit humanity through open-source AI. Though, legal experts are skeptical of the lawsuit's merits.

• Your cap table structure could make your startup uninvestable. At least, it did for this Norwegian hardware startup that gave away excessive equity in its early funding rounds.

• The founder of an AI startup is charging investors $100 to meet with him due to overwhelming VC interest, exhibiting the extreme divide between hot and cold startup sectors.

Elon Musk sues OpenAI CEO Sam Altman Over OpenAI's Direction

Elon Musk is seeing red over OpenAI's growing ties with Microsoft, alleging in a lawsuit that the AI lab he helped found has betrayed its original mission in pursuit of profits.

Musk claims he secured a founding pact to keep OpenAI a nonprofit focused on developing open-source AI to benefit humanity. But through its partnership with Microsoft, OpenAI has transformed into a "closed-source de facto subsidiary" aiming to optimize AI for Microsoft's gains, the Tesla CEO argues.

The lawsuit seeks an injunction over OpenAI's tech along with claims of breach of contract and fiduciary duty. Legal experts doubt the suit's viability but say it could uncover the inner workings of OpenAI. More broadly, it spotlights concerns over AI ethics as the tech advances.

With Musk firing shots, tensions are flaring over balancing public good versus private profits when it comes to rapidly evolving AI. The clash also highlights how priorities can shift radically as outsider tech and innovation labs can be easily seduced by big checks from tech giants.

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A Tiny AI Startup Wants Investors to Pay $100 to Book a Meeting with Its Founder

Investor fever for AI startups has reached such heights that founders are brazenly charging VCs just to score a meeting.

Case in point is Dan Siroker, CEO of AI upstart Rewind. After previously being bombarded with funding interest, Siroker is now making investors pay $100 upfront to book time on his calendar.

The move exhibits the extreme frothiness returning to parts of startup funding even as other sectors scramble for scraps. With Rewind claiming it doesn't need cash thanks to a recent mega-round, Siroker is using the fees partly as a test of investor dedication.

But the episode also spotlights worrying signs of inequality in the startup world. Savvy AI founders are being treated like unicorns while other entrepreneurs fight fiercely for survival.

Investors, meanwhile, are stretching deep into their networks for intro's before deals get too competitive. And they now seem willing to swallow their pride and pay up just to get in the room with startups with huge potential payoffs.

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Your Cap Table Could Make Your Startup Uninvestable According to VCs

A seed-stage hardware startup is facing a funding crisis after giving away the farm equity-wise in its early rounds. Now, the Norwegian company is desperately seeking more capital but finding its lopsided cap table to be a deal breaking turn-off for investors.

The startup allocated over 66% of its equity to raise just $3.3 million initially. With founders now left owning less than a third of the business, new investors see too little upside for themselves or incentive for founders to stay motivated.

It's a common misstep in smaller startup ecosystems without deep venture experience. Hungry for cash, founders accept excessively dilutive terms without considering longer term consequences. And local investors focused on quick returns often push exploitative deals.

Now in order to have a shot at raising more, this startup needs a "lead" to come in, clean up the cap table, and restore decent founder ownership. But investors told reporters that few will bother with such an aggressive move for an unproven seed-stage company.

The lesson is that fixing bad cap tables early is critical for startups eyeing big future rounds. Otherwise, founders get stuck with little control or beneficiaries over potential billion dollar businesses — regardless of how promising the idea and team.

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Parting Thoughts

Well, that’s the tech news for this week. Hit reply and let us know — did you learn something from today’s newsletter?

Until next time!