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AI startup Stability AI is in acquisition talks despite a billion-dollar valuation due to dwindling cash reserves, The Information reports, citing a source familiar with the matter.

The London-based company behind the popular open-source image generator Stable Diffusion raised more than $100 million from investors including Coatue Management and Lightspeed Venture Partners in 2022, giving it a valuation of $1 billion.

But Stability AI has struggled to monetize its largely free software, especially in the face of growing competition from rivals like OpenAI and Midjourney. The startup has reportedly discussed a sale with AI companies Cohere and Jasper in the past.

Management issues also surfaced: Founder and CEO Emad Mostaque resigned in March amid reports of mismanagement and questions about his professional background.

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In December 2022, Stability AI secured $101 million from various VCs at a $1 billion valuation, and Intel recently invested $20 million, mostly in the form of computing power.

But the company spent heavily on research and computing resources without developing viable business models. It projected $99 million in computing costs alone in 2023, mostly for the AWS cloud, plus $54 million in personnel costs.

An October 2023 financial forecast showed $153 million in expenses against just $11 million in revenue, with cash and equivalents dropping below $4 million. Stability AI currently has about $100 million in liabilities to cloud providers.

A potential buyer might be primarily interested in acquiring Stability AI's 70 to 90 AI researchers and engineers, certain technical approaches, and the established Stable Diffusion brand.

Microsoft recently made a stealth acquisition of the billion-dollar British AI startup Inflection AI, which ultimately could not compete with superior AI models from OpenAI or Anthropic in a market that is losing money anyway. Microsoft was primarily interested in the employees, who will now strengthen the company's internal AI development.

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Summary
  • AI startup Stability AI, the company behind open-source image generator Stable Diffusion, is in talks to sell despite a billion-dollar valuation as cash reserves dwindle.
  • High spending on research and computing power without a viable business model has led to a projected deficit of $142 million in 2023 and current liabilities of $100 million to cloud providers.
  • In the event of a potential sale, the 70-90 AI researchers and engineers at Stability AI, as well as some technical approaches and the Stable Diffusion brand, may be what a potential buyer is interested in.
Sources
Online journalist Matthias is the co-founder and publisher of THE DECODER. He believes that artificial intelligence will fundamentally change the relationship between humans and computers.
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