According to several sources who spoke to Bloomberg , Stability AI has considered itself an “acquisition target” in recent weeks, even starting discussions with potential companies. A source said negotiations have not yielded results, so Stability AI is considering shortening unnecessary processes.
Pressure is said to be increasing from some of the largest investors regarding the financial situation of Stability AI – a startup that was once the “darling” of venture capital funds. Last month, Coatue Management – one of the funds that has invested tens of millions of dollars in Stability AI – sent a letter calling for CEO Emad Mostaque to resign.
Stability AI CEO Emad Mostaque. Photo: VentureBeat
Mostaque is among the originators and exploding creators of the generative AI craze, as is OpenAI’s Sam Altman . However, unlike Altman, Mostaque often causes controversy when using many tricks and exaggerations to attract attention.
The source revealed that Coatue Management noticed that under Mostaque’s leadership, a number of talented senior managers had left, placing Stability AI in a financially unstable future.
Coatue Management declined to comment. A Stability AI spokesperson said: “While several parties have expressed interest in purchasing Stability AI, we are not trying to sell the company and remain focused on developing leading products. Under the leadership and CEO Mostaque’s management, we have created many successes. Investors still trust Stability AI.”
Meanwhile, a source told Fortune , Stability AI has sought to contact a number of buyers. One of them is Cohere, a startup in Canada, currently researching AI products for its own purposes. Still, Cohere refused to participate in the negotiations. Stability AI also approached Jasper, a startup that builds AI software that helps create marketing materials, but to no avail.
Mostaque founded Stability AI in 2019. Initially, the company focused on using AI to process information related to Covid-19. However, when the AI wave began to rise, Mostaque recognized new opportunities.
The Stable Diffusion tool emerged in the middle of last year with the ability to turn text into images – something most previous AI tools could not do or did not create a realistic feeling. Soon after, Coatue Management and another large fund, Lightspeed Venture Partners, invested 100 million USD, helping them to be valued at more than a billion USD. In the middle of this year, the value of Stability AI increased rapidly with an estimate of four billion USD.
To build Stability AI’s reputation, Mostaque made a move that according to former employees was extremely risky, including promises, exaggerations and many other tricks when implementing AI projects. This causes the startup to cause a lot of controversy, even getting into trouble with state agencies.
Recently, the Stable Diffusion tool has also been used to create controversial photos, such as Pope Francis in a puffy jacket, actress Emma Watson as a mermaid and former President Donald Trump fleeing from the FBI . The photo’s authenticity has raised concerns about the increasing spread of hard-to-distinguish deepfake works.
Stability AI has encountered a cash crisis since mid-year. According to seven employees and former employees revealed to Forbes , Stability AI has owed salaries for many months, some even have not received salaries for more than a year. Eric Hallahan, a former intern, said he is still waiting to be paid his collaboration salary from August 2022 for 181 of the 300 hours worked.
Despite the controversy, Intel still invested nearly 50 million USD in Stability AI in the form of convertible bonds. Up to now, the company still spends a lot on activities but has limited revenue. According to two sources speaking to Bloomberg , since the agreement with Intel, Stability is spending about $8 million per month on operations and employee salaries.
Bao Lam
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