Stability AI explores a sale as investors pressure CEO to resign


Stability AI, the British artificial intelligence startup behind the Stable Diffusion image generator, has explored selling the company as management faces increased pressure from investors over its financial position.

The London-based firm has presented itself as an acquisition target in recent weeks, and held early-stage conversations with multiple companies, according to 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 cut the process short without selling, they said.

The overtures underscore escalating tensions between Stability, once a venture capital darling, and some of its largest investors. Coatue Management called for Chief Executive Officer Emad Mostaque to step down in a letter to management last month, some of the people said. The demand came 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. Stability secured more funding for the round that ultimately led to a $1 billion valuation.

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

Coatue wrote that Mostaque’s leadership had prompted several senior managers to leave and placed the startup in a tenuous financial position, according to the people. 

“Our CEO’s leadership and management has been instrumental to Stability’s success,” the Stability spokesperson said. “Recent investment underscores the confidence that investors have in Stability in this fast-growing market.”

Representatives for Coatue declined to comment. 

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

Stability also approached Jasper, an AI 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 pictures in response to a few prompts. In October, it received an investment of just under $50 million in the form of a convertible note from Intel Corp.  

Tools such as Stable Diffusion have been the subject of some controversy. They’ve been used to produce convincing images of Pope Francis in a puffer jacket, actress Emma Watson as a mermaid and former President Donald Trump sprinting from a cadre of FBI agents, stoking concerns about the increasing spread of deepfakes. 

The company is spending significant amounts of money to grow its business. At the time of its deal with Intel, Stability was spending roughly $8 million a month on bills and payroll and earning a fraction of that in revenue, two of the people familiar with the matter said. 

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

The Stability AI spokesperson declined to comment on the post.

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

Over the last year, Stability AI embarked on a hiring spree, recruiting researchers from bigger technology companies to release its open-source software at a rapid clip. Yet several senior hires quickly departed, driven away by a disorganized culture under Mostaque, a former hedge fund employee and crypto entrepreneur, Bloomberg News reported in August.

The company has had a tumultuous relationship with its investors. Coatue general partner Sri Viswanath is no longer a director — a departure one person attributed to Intel’s Stability investment, because Coatue has a significant stake in Intel rival Advanced Micro Devices Inc. A partner at Lightspeed Venture Partners left the startup’s board observer role, Bloomberg News reported earlier. 

In September, Intel described the startup as the “anchor customer” for a new AI supercomputer. The chipmaker’s investment the following month was partially contingent upon Stability AI using the Intel processors in its computing over the coming months, according to two people familiar with the deal. 

“While we don’t disclose the specifics of our partnerships, the capital Stability has received is not contingent on any specific hardware or cloud service to date,” the Stability spokesperson said. 

An Intel spokesperson declined to comment. 

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