Investor Demands CEO Resignation – AI Company on the Brink of Sale?

Stability AI, the British startup specializing in artificial intelligence, has been considering the sale of the company due to mounting pressure from investors regarding its financial situation. This comes as the management team grapples with the challenges ahead, particularly concerning the Stable Diffusion image generator.

The London-based company has presented itself as a potential acquisition target in recent weeks and held initial discussions with several companies, said several people familiar with the matter, who asked not to be identified because the discussions were private. A deal is not imminent and the company could end the process without a sale, they said.

The opening remarks highlight the escalating tensions between former venture capitalist Stable and some of its biggest investors. Coatue Management called on CEO Emad Mostaque to resign in a letter to management last month, some of the people said. The request comes just a year after Coatue led a funding round that initially valued the startup at $500 million, according to a person familiar with the deal. The stability secured more funding for the round, which eventually led to a billion dollar valuation.

“While several parties have expressed interest in acquiring Stability AI, we are not trying to sell the company and are focused on releasing leading models,” such as its latest video generation product, a Stability spokesperson said via email.

Coatue wrote that Mostaque’s leadership had prompted the departure of several senior executives and put the startup in financial trouble, according to the people.

“Our CEO’s leadership and management have been central to Stable’s success,” Vakaus’ spokesperson said. “Recent investments underline investors’ confidence in stability in this fast-growing market.”

Coatue representatives declined to comment.

One of the companies approached as a potential buyer was Cohere, a Canadian startup that works on building technology that other companies can use to create their own AI products, one of the people said. Cohere declined to participate in the discussions, according to the person.

Stability also approached Jasper, an artificial intelligence startup whose software helps companies create marketing materials, two of the people said.

Representatives for Cohere and Jasper declined to comment.

Stability raised $101 million in 2022 to reach unicorn status as investors were drawn to its software that could produce striking images in response to a few prompts. In October, it received an investment of just under $50 million in the form of a convertible bond from Intel Corp.

Tools like Stable Diffusion have been controversial. They have been used to produce compelling images of Pope Francis wearing a trench coat, actress Emma Watson as a mermaid and former president Donald Trump sprinting through a crowd of FBI agents.

Read more: Deepfake pornography victims learn there are no laws against it

The company spends considerable sums to grow its business. In its deal with Intel, Sability spent about $8 million a month on invoices and payroll and earned a fraction of that revenue, two people familiar with the matter said.

It posted $1.2 million in revenue in August and was on track to earn $3 million this month from software and services, according to a post Mostaque wrote Monday on X, the platform formerly known as Twitter. The post has since been deleted.

A spokesperson for Stability AI declined to comment on the message.

Coatue sent a letter to the company’s management in late October after Intel’s investment, according to people familiar with the matter. The company also requested information on the pay of Mostaque and other top executives, they said.

Over the past year, Stability AI began hiring by recruiting researchers from larger tech companies to rapidly release its open source software. Still, several senior employees quickly resigned, driven away by the disorganized culture under Mostaque, a former hedge fund employee and crypto entrepreneur, Bloomberg News reported in August.

The company has had a stormy relationship with its investors. Coatue’s major shareholder Sri Viswanath is no longer a director — one person is leaving Intel’s stability investment because Coatue has a significant stake in Intel’s rival Advanced Micro Devices Inc. A partner at Lightspeed Venture Partners left the startup’s board observer role, Bloomberg News previously reported.

In September, Intel described the startup as an “anchor customer” for its new AI supercomputer. According to two people familiar with the deal, the chipmaker’s investment next month was partially contingent on Stability AI using Intel processors for its calculations in the coming months.

“While we are not disclosing the details of our partnership, the capital received by Vakaus is not dependent on any specific hardware or cloud service to date,” a Vakaus spokesperson said.

An Intel spokesman declined to comment.