Stability AI explores a potential acquisition amid investor pressures

November 29, 2023

Stability AI Stable Chat

Stability AI, known for its Stable Diffusion image generator, is reportedly exploring a sale.

This follows growing pressure from investors regarding the company’s financial situation. 

The London-based firm has been engaging in preliminary discussions with multiple potential buyers, though no deal is imminent.

The situation has escalated due to increasing tension between Stability AI and some of its key investors, particularly Coatue Management. Coatue Management called for the resignation of Stability AI’s CEO, Emad Mostaque, following concerns over his leadership and the company’s financial health. 

Mostaque’s leadership has been criticized several times this year, including a lawsuit submitted by co-founder Cyrus Hodes, who alleged that Mostaqu “fraudulently cheated” him out of his stake in the company. 

Coatue Management’s concerns were highlighted in a letter sent to Stability AI’s management, citing issues like the departure of senior managers and the company’s precarious financial position under Mostaque’s leadership.

A spokesperson for Stability AI commented on the situation, stating, “While several parties have expressed interest in the purchase of Stability AI, we are not trying to sell the company and are focused on releasing leading models.” The company released extremely impressive real-time text-to-image generators this week.

Despite challenges, Stability AI become central to the industry’s open-source research. They raised $101 million in 2022, achieving unicorn status and attracting further investment from Intel. 

The company, however, is facing a financial crunch. Reports suggest that it was spending around $8 million a month around the time of its deal with Intel, with revenues being only a fraction of its expenses.

Other AI companies will likely face these issues in the coming months and years, with AI proving expensive to maintain and tough to monetize.

Stability: a year of woes

Stability AI has earned the harsh nickname “Instability AI.” Here’s why:

  • Copyright dispute and executive resignation: The Vice President of audio at Stability AI recently resigned over the company’s stance on using copyrighted material in machine learning models. 
  • Lawsuit by co-founder: A co-founder of Stability AI sued the company and its CEO, alleging that he was misled into selling his 15% stake for only $100, just months before the company reached a $1 billion valuation. The lawsuit accused CEO Emad Mostaque of fraudulent behavior and sought restoration of the stake and punitive damages​​​.
  • Internal management and financial issues: The company experienced a wave of departures among senior executives, including the COO and head of research. This raised concerns about Stability AI’s internal management and financial stability. Allegations of unpaid bills, legal disputes, and disorganization within the company were reported, along with a lack of clear direction under CEO Emad Mostaque’s leadership​​​​​​​​.
  • Questioning CEO’s credentials: Forbes published an article questioning the credentials and accomplishments of Emad Mostaque, the CEO of Stability AI. This came amid the company’s rapid growth from pre-seed to unicorn status.
  • Lawsuit by Getty Images: Getty Images filed a lawsuit against Stability AI for allegedly using over 12 million of its images without permission to train the Stable Diffusion AI system. The lawsuit, including a separate case in the UK and a related class-action complaint in California, accuses Stability AI of copyright and trademark infringement. Getty Images requested the court to stop Stability AI from using its pictures and sought damages, including profits from the alleged infringement​​​​​​​​.

Despite the controversy, many revere Stability AI for its open-source research contribution and pragmatic, powerful models.

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Sam Jeans

Sam is a science and technology writer who has worked in various AI startups. When he’s not writing, he can be found reading medical journals or digging through boxes of vinyl records.


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