The future of StabilityAI, once considered one of the world’s most promising artificial intelligence start-ups, has been thrown into doubt following the chaotic departure of its founder and concerns that it will struggle to become profitable.
Emad Mostaque resigned last week as chief executive of the London-based group behind Stable Diffusion, an artificial intelligence model capable of creating images through simple written instructions, whose app has been downloaded more than 150 million times.
The company founded three years ago was valued at $1 billion in August 2022, following a $101 million funding round led by leading US tech investors Coatue and Lightspeed Venture Partners. The deal puts it at the forefront of the generative AI revolution alongside groups like OpenAI and Inflection.
Mostaque, a mathematician trained at Oxford University and often described as a “visionary” by those who have worked with him, said he would leave Stability to focus on the lofty goal of ensuring technology benefits humanity.
“The concentration of power in artificial intelligence is bad for all of us. . . I have decided to resign to resolve this issue at Stability & elsewhere,” he posted on source and the company.
However, others, including former executives and existing investors, describe Mostaque as an untrustworthy leader who has faced growing pressure from Stability’s financial backers over a series of legal battles, rising costs and an inability to monetize his products.
The conflicting perspectives highlight how confusion has come to characterize Stability’s operations in recent months.
“Emad didn’t care about the trade mission at all,” said a person close to Mostaque and Stability.
Mostaque described this assessment as “silly” and said that this year he was focused on “increasing revenue as we moved from early adoption to mass enterprise adoption.”
Stability said it “develops and will continue to develop best-in-class generative artificial intelligence models.”
In recent weeks, Mostaque told multiple people he was resigning, including at this month’s Abundance360 conference in Los Angeles, according to people familiar with those discussions who were first reported by Forbes.
The stability council was shocked to hear that Mostaque had announced his exit before officially notifying them, according to a person familiar with the discussions. Mostaque said the board was aware of his intentions.
Stability has named Chief Operating Officer Shan Shan Wong and Chief Technology Officer Christian Laforte as interim co-chief executives.
Stability means looking for a stable leader, looking for executives from the media and creative industries, which could involve moving the company overseas, say two people familiar with the CEO search. The company has 170 employees, with about 80 AI-related researchers and engineers.
The new administrator will be responsible for making the company’s first profit. It costs $8 million a month with revenue of $5.4 million in February, up from about $3 million in November, according to three people familiar with Stability’s finances.
Last year, as rival AI startups raised hundreds of millions of dollars, Stability tried to raise new funds at a significantly higher valuation but failed to attract enough interest, according to a person familiar with the process. Instead, the company raised about $80 million, including investments from Intel, according to people familiar with the deals.
“There has never been a price round attempted,” Mostaque said. “Over 100 investors have signed [non-disclosure agreements] waiting for data room access for when this happens.
Venture capital advocates have grown restless at the company’s apparent inability to profit from the AI gold rush. Coatue’s partners had tried to oust Mostaque in recent months but had little power to remove him, according to two people familiar with the firm’s position. Coatue declined to comment.
According to people familiar with the situation, investors had also become concerned about his leadership following a Forbes report last year that he had exaggerated his academic and career credentials – allegations Mostaque denies.
“The media attacks really hurt him and followed him and the company around,” a person close to Stability said. “There have been all the growing pains of scaling a start-up, but now that he’s no longer part of the conversation about the company, we can move forward.”
Mostaque said he addressed the allegations in his blog and that “the media’s continued attacks dragged us down despite them being patently false.”
“I stayed to lead the company to the best models of each type, round out the research team and put it on the path to profitability. All the researchers would have left if I had left when the attacks started, at that point we only had one image model and one mediocre language model,” she said.
The company’s origins are also disputed. Stability co-founder Cyrus Hodes is suing the company, claiming Mostaque tricked him into selling shares potentially worth hundreds of millions of dollars for $100. Mostaque said it was a “specious cause” and a “clear sign of regret from the seller.”
Work on Stable Diffusion, a model that sets new standards in image generation, originated at Germany’s LMU university in Munich and was supported by the team at generative AI start-up Runway ML, according to several people involved.
Stability donated computing resources that helped Monaco and Runway staff members 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 large legal costs, as it defends a case in the UK High Court brought against it by Getty Images, which claims its image library was used to train Stable Diffusion. He is also defending lawsuits from artists who say their copyrights have been used on models without consent.
Ed Newton-Rex, a 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 the general counsel, the head of people operations, seven vice presidents and a number of researchers.
Mostaque said: “Most of these happened last year, especially a big cleanup where some were let go because they didn’t fit into a rapidly growing company.”
He added: “Some researchers left after I told them I was leaving, grateful that they stayed so long and worked so hard despite others offering them more than their pay.”
Some of these former employees have refuted Mostaque’s account, saying they left the company voluntarily.
An investor in the company said: “The product is actually really special and differentiated. It was simply poorly managed [Mostaque] at the helm. We are optimistic that a new CEO can clean it up.”
Additional reporting by Tim Bradshaw in London