Anthropic’s IPO attacked as investors asked to pay billions for no control

The billionaire founders of AI pioneer, Anthropic, are facing investor and governance concerns over plans to sell shares to the public — while retaining near-total control of the company — through an unprecedented structure.

Anthropic, known for creating AI chat bot ‘Claude’, is expected to seek a Nasdaq listing as early as next month in a move that could raise as much as $US70 billion ($99b), with public investors buying Class A shares carrying one vote each.

But the structure has drawn criticism from corporate governance campaigners, who argue it allows Silicon Valley’s most valuable companies to tap public markets without accepting the accountability that traditionally comes with outside ownership.

“We need strong corporate governance standards and sensible regulation, because these companies’ consequential decision making processes cannot be left to the billionaire executives who are openly willing to gamble with the future of humanity to make themselves richer,” said Shaunna Thomas, executive director of AI campaign group Guardrails Alliance.

Anthropic’s prospectus admits its corporate governance structure has “no direct company precedent” as it seeks to win a valuation of up to $US2 trillion ($2.85t) from outside investors.

It argues the unusual corporate governance is necessary because of the potential national security, cyber security and wider safety implications of developing powerful AI systems.

It also concedes that many professional investors will refuse to buy shares in a company where they have zero effective voting power in.

Investor protections gutted

Thomas labelled the IPO’s structure as another example of Silicon Valley and Wall Street combining to rewrite rules and ride roughshod over the public with seemingly little pushback.

“Going public used to mean accepting transparency and accountability to shareholders and the public,” she said. “Now, thanks to Silicon Valley-backed efforts to gut investor protections, companies like (Elon Musk’s) SpaceX and Anthropic can raise capital publicly without the oversight and scrutiny that traditionally came with it. “

Mr Musk was able to raise $US85.7b ($122b) from investors at SpaceX’s IPO in an unprecedented deal that still left him with a giant 85 per cent of the company’s voting power.

Thomas attacked the structure of the mega-deals as attempts to milk a lemming-like public for funds, without transferring sufficient ownership rights in return.

The issue takes on added significance given AI’s potential to widen the wealth gap between the technology’s owners and workers replaced by it.

Anthropic’s prospectus reveals that its 5300 employees receive an average cash salary of about $US450,000 ($640,000), rising to roughly $US1.4 million ($2m) once stock-based compensation is included.

That concentration of wealth among AI companies’ founders and employees comes as the technology fuels growing concern about job displacement and the disruption of significant industries.

“As AI systems become more capable or prevalent, public perception that our models, platform, and applications contribute to job displacement or economic disruption could generate significant negative media coverage, customer or employee backlash, or organised opposition,” the company’s prospectus acknowledges.

Thomas has also attacked the growing political influence of AI billionaires, arguing that the industry is spending heavily to shape regulation in its favour.

“The AI industry is pouring record sums to buy our elections and elect politicians who will allow the industry to write its own rules,” she said.

“Elon Musk has spent more than $US442m ($629m) in the midterms, as Anthropic set compute agreements with SpaceX worth up to $3.1 billion ($4.4b) a month. Anthropic’s S-1 (prospectus) proposes a share structure that hands its founders a majority of the votes. This power grab, in politics and governance, shows a company and industry putting profit over public interest.”

Retail investors not worried

Anthropic shares similarities to SpaceX in that it will market its shares to less-sophisticated retail investors at the IPO stage.

Traditionally, the better the company at the IPO stage the harder it is to get access to buy the shares, with retail investors shut out of high-quality listings.

In Anthropic’s case, Australia’s largest retail broker CommSec is thought to be among a number of players that will offer the shares for sale to anyone with an online account.

Still, some professional investors suggest AI’s inevitable advance will create new industries, jobs and wealth linked to higher productivity.

Jarrad Stuart, founder and portfolio manager of Sharpbridge Funds Management said Anthropic looked a “great” business at the cutting-edge of the biggest technological shift since the internet’s invention.

Stuart also suggested many retail investors are less concerned about voting rights and more concerned about the share price rising or falling.

“We think Anthropic’s a really fantastic business with great growth prospects,” he said. “But it’s true there’s a lot for investors to digest in a 400-page prospectus. So it will take time and the one thing we do know is the valuation will be high relative to its financial performance.”

For Anthropic’s founders, the proposed structure offers the best of both worlds in giving them access to a vast pool of public capital while preserving control over the company’s direction.

The company’s final share price and valuation will be set in the next couple of weeks after its investment banking advisers have gauged the total interest in supporting its plans to go public.