Investors including former Facebook President Sean Parker are pouring $80 million into buying Stability AI, an image-generation startup that rose to popularity during the artificial intelligence boom but quickly ran into financial difficulties.
Investors including former Facebook President Sean Parker are pouring $80 million into buying Stability AI, an image-generation startup that rose to popularity during the artificial intelligence boom but quickly ran into financial difficulties.
The investment group, which includes former Google CEO Eric Schmidt and some of Stability's early backers, has reached an agreement with suppliers to forgive about $100 million in debt owed by Stability, according to people familiar with the matter.
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The investment group, which includes former Google CEO Eric Schmidt and some of Stability's early backers, has reached an agreement with suppliers to forgive about $100 million in debt owed by Stability, according to people familiar with the matter.
The investors also negotiated for the startup to be released from $300 million in future debt that was due primarily to cloud computing providers.
The capital raise aims to breathe new life into the company, which develops “Stable Diffusion,” an image-generation tool that competes with OpenAI's DALL-E and startup Midjourney. Stability raised $101 million in late 2022 at a $1 billion valuation, but has since struggled to build a business model around its technology, an open-source tool that other companies can use for free.
Stability held talks with investors last year about raising more capital but no deals were reached, according to a person familiar with the matter.
Parker said he was confident that despite these issues, the company's core technology would remain popular and it would be a financial success.
“Every business challenge is one we know how to solve,” he said.
Parker, who will become executive chairman of Stability AI's board of directors, declined to comment on the company's valuation following the new investment.
Many generative AI startups have struggled to develop viable business models after raising billions of dollars from investors believing in the technology's potential, raising questions in Silicon Valley about a possible shakeout of the field.
Investors generally believe AI will transform the global economy, but there is growing concern that many well-funded startups in the space may not be able to generate enough revenue to stay viable.
Stability co-founder Emad Mostak stepped down as CEO in March amid pressure from investors. Under Mostak, a string of high-profile employees have left the company. The company also has fallen behind on payments for mounting bills, including for computing resources, a lifeline for the AI ​​industry, according to people familiar with the company's finances.
Mostake, who still holds shares in Stability, said he is focusing on technology and leaving business issues to other senior executives.
“I hired highly qualified people and delegated business and other functions to these proven leaders,” he said. “As a fast-growing company in a fast-growing sector, some did well, while others did not perform well and left or were fired.”
The investor group appointed new CEO Prem Akkaraju, who previously led Weta FX, the visual effects company behind “Avatar” and “Avengers: Endgame.”
The Information previously reported that Parker was taking part in the new investment round and that Akkaraju would join as CEO.
“Stability has a lot of influence and distributional power, and we think it will be very difficult to re-establish it,” said Akkaraju, who has invested in the company, and said drawing up a business plan for the next three months is a priority.
Parker and Akkaraju said Stability will continue to offer its open-source model for free to researchers and many other developers, but they envision offering paid versions to larger companies that build products using the company's technology. Stability could also sell tools to help developers integrate its technology.
“Obviously, this is a place where you can charge a fee for models,” Parker said.
Akkaraju said Stability's video generation tools could also enable it to begin negotiations with Hollywood producers and studios, where his previous experience in visual effects could prove valuable.
Investors in the round include Greycroft, O'Shaughnessy Ventures, and Robert Nelsen, a biotech investor best known for funding projects aimed at eradicating disease. Previous investors Coats Management, Lightspeed Venture Partners, and Ashton Kutcher's Sound Ventures have also committed funding.
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