Stability AI, the British AI startup once valued at $1 billion and known for the popular text-to-image generator Stable Diffusion, is fighting for survival.
The company is grappling with financial turmoil, management chaos, and the resignation of its founder and ex-CEO Emad Mostaque, who only stepped down after a dramatic closing of ranks by backers, according to Forbes.
Stability AI raised $101 million from investors in the fall of 2022, shortly after the successful launch of Stable Diffusion, and was valued at $1 billion. Interim co-CEOs Shan Shan Wong and Christian Laforte are now tasked with turning things around.
According to Forbes, which cited internal documents and statements from over 30 current and former employees, investors, and industry experts, Mostaque's management had numerous problems:
- Stability AI spent huge sums on research and computing power without developing viable business models.
- The company left invoices from cloud providers like Amazon Web Services, amounting to millions, unpaid.
- Negotiations with potential major customers such as Samsung, Snap and Canva failed.
- Mostaque overestimated himself with unrealistic promises such as customized national AI models.
- Executives, including the core team behind Stable Diffusion, resigned in frustration.
Former and current employees told Forbes that Mostaque has annoyed investors, talked nonsense, failed to set priorities, and missed major business opportunities. The startup is also under pressure from legal battles over the legitimacy of generative AI models trained on unlicensed data.
Stability AI's expenses of $153 million dwarfed its income of just $11 million, according to an October 2023 financial forecast by the Management Board cited by Forbes. The company's cash had dwindled to less than $4 million.
Computing costs to train Stable Diffusion, mainly from using AWS, threatened Stability AI's existence. In 2023 alone, $99 million in computing costs were projected, in addition to $54 million in personnel costs. Efforts to raise fresh capital largely failed. Intel is said to have chipped in another $20 million - significantly less than the $50 million claimed at the time.
Investors Coatue and Lightspeed lost confidence and demanded that the company be sold. But Mostaque, who owns the majority of the shares, resisted. He tried his luck with Nvidia, but talks with Nvidia CEO Jensen Huang reportedly broke down quickly after Huang asked tough questions.
Can Stability AI turn things around?
The management duo Wong and Laforte now urgently need to get costs under control and convince investors of the company's future viability. The clock is ticking: A February financial forecast projected revenues of $5.4 million - with costs of $8 million.
The departure of Stable Diffusion's core development team and outstanding payments to Amazon, Google, and other service providers exacerbated the crisis. Without a quick sale or fresh capital from a "white knight", some insiders see little chance of survival for Stability AI, Forbes reports.
Mostaque points to successes - and admits mistakes
Mostaque points to Stability AI's successes in building cutting-edge AI models that beat big tech companies. "Most 2-year-old companies aren't building state-of-the-art models across multiple modalities, beating big tech equivalents with hundreds of millions of downloads."
Other companies in the generative AI space have spent much more for a fraction of the revenue, Mostaque said. "OpenAI had 7 years and over a billion to build, plus Microsoft."
However, he acknowledged mistakes in team management and said the focus on revenue didn't begin until late 2023. There were mistakes in team management and processes, and he was "a bit of a weird CEO that folk didn't like."
"A good new business CEO and it [Stability AI] will fly," Mostaque wrote. "We made a company that could do hard things, but not easy things."
Upon his departure, Mostaque said he wanted to focus on decentralized AI and the distribution of power that comes with AI development.
