Chaotic departure of StabilityAI chief raises doubts over start-up’s future

The future of StabilityAI, once seen as among the world’s most promising artificial intelligence start-ups, has been thrown into doubt following the chaotic departure of its founder and concern it will struggle to become profitable.

Emad Mostaque resigned last week as chief executive of the London-based group behind Stable Diffusion, an AI model that can create images through simple written prompts, with its app being downloaded more than 150mn times.

The three-year-old company was valued at $1bn in August 2022, following a $101mn funding round led by top US tech investors Coatue and Lightspeed Venture Partners. The deal put it in the vanguard of the generative AI revolution alongside groups such as OpenAI and Inflection.

Mostaque, an Oxford university-educated mathematician who is often described as a “visionary” by those who have worked with him, said he was leaving Stability to focus on a lofty goal of ensuring the technology will benefit humanity.

“The concentration of power in AI is bad for us all . . . I decided to step down to fix this at Stability & elsewhere,” he posted on X. Mostaque told the Financial Times that he retained his shares but was handing over voting control to other board members who would prioritise open source and the company.

However, others, including former executives and existing investors, describe Mostaque as an unreliable leader who had faced mounting pressure from Stability’s financial backers over a string of legal battles, rising costs and a failure to monetise its products.

The conflicting perspectives highlight how confusion had come to characterise Stability’s operations in recent months.

“Emad did not care at all about the commercial mission,” said one person close to Mostaque and Stability.

Mostaque described this assessment as “silly” and said that he had focused this year on “ramping revenue as we moved from early adopter to mass-enterprise adoption”.

Stability said it “develops and will continue to develop best-in-class generative AI models”.

Over recent weeks, Mostaque told multiple people that he was about to resign, including at this month’s Abundance360 conference in Los Angeles, according to people with knowledge of those discussions which were first reported by Forbes.

Stability’s board was shocked to hear that Mostaque had been announcing his exit before officially notifying them, according to one person familiar with the discussions. Mostaque said the board was aware of his intentions.

Stability has appointed chief operating officer Shan Shan Wong and chief technology officer Christian Laforte as interim co-chief executives.

Stability is seeking a permanent leader, looking for executives from the media and creative industries, which could result in the company being moved abroad, said two people familiar with the CEO search. The company has 170 employees, with about 80 AI researchers and engineers.

The new chief will have the job of achieving the company’s first profit. It has $8mn in costs a month with revenues of $5.4mn in February, up from about $3mn in November, according to three people familiar with Stability’s finances.

Last year, as rival AI start-ups were raising hundreds of millions of dollars, Stability tried to raise new funds at a significantly higher valuation but failed to attract enough interest, according to one person familiar with the process. Instead, the company raised about $80mn, including investment from Intel, according to people familiar with the contracts.

“A priced round was never attempted,” Mostaque said. “Over 100 investors have signed [non-disclosure agreements] awaiting data-room access for when that occurs.”

Venture capital backers have grown restive at the company’s seeming inability to cash in on the AI gold rush. Partners at Coatue had sought to oust Mostaque in recent months but had little power to remove him, according to two people with knowledge of the firm’s position. Coatue declined to comment.

According to people close to the situation, investors had also become concerned over his leadership following a Forbes report last year that he had exaggerated his academic and career credentials — allegations that Mostaque denies.

“The media attacks really damaged him and followed him and the company around,” said one person close to Stability. “It was all the growing pains of scaling a start-up, but now that he is no longer part of the conversation about the company, we can move on.”

Mostaque said he had addressed the allegations in his blog and that the “continuous media attacks did drag us down despite being patently false”.

“I stayed to get the company to the best models of every type, round out the research team and put it on the path to profitability. All the researchers would have left if I left when the attacks started, at which point we only had an image model and a mediocre language model,” he said.

The origins of the company are also contentious. Stability co-founder Cyrus Hodes is suing the company, claiming Mostaque duped him into selling stock potentially worth hundreds of millions of dollars for $100. Mostaque said it was a “specious lawsuit” and a “clear sign of seller regret”.

Work on Stable Diffusion, a model which set new standards in image generation, originated at German university LMU Munich and was supported by the team at generative AI start-up Runway ML, according to multiple people involved.

Stability donated computing resources which helped the Munich and Runway staffers train the models who named it Stable Diffusion in gratitude to their benefactor. But they added that Stability had little research input.

The company is also facing hefty legal costs, as it defends a case in the UK High Court brought against it by Getty Images, which claims its library of images was used to train Stable Diffusion. It is also defending lawsuits from artists who claim their copyright was used in models without consent.

Ed Newton-Rex, the former vice-president of audio, left the company in November, saying it was “exploitative” to use creative works without consent. Several executives have also left in recent months, including its general counsel, head of people operations, seven vice-presidents and a number of researchers.

Mostaque said: “Most of these were last year, in particular a big clean-up where a number were let go as they didn’t fit a fast-growing company.”

He added: “Some researchers left after I told them I was leaving, grateful they stayed so long and worked so hard despite being offered multiples of their pay by others.”

Some of those former employees refuted Mostaque’s account, saying they left the company voluntarily.

One investor in the company said: “The product is actually really special and differentiated. It was just poorly run with [Mostaque] at the helm. We are optimistic a new CEO can clean up.”

Additional reporting by Tim Bradshaw in London

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