Stability AI is on the verge of collapse

Stability AI is on the verge of collapse. The company's former CEO, Emad Mostak, was unable to find funds to pay for the rented cloud GPUs needed to train the popular Stable Diffusion model. In addition, the company is experiencing a staff shortage and is losing investor confidence.

What happened to Stability AI

Stability AI, which has invested about $99 million in leasing cloud services from Amazon Web Services, Google Cloud Platform and GPU specialist CoreWeave, has encountered financial difficulties. An additional $54 million was allocated for salaries and operating expenses, resulting in total expenses of $153 million for 2023. However, according to expert data, revenues from the sale of the company's products in 2023 amounted to only $11 million, which did not correspond to costs and financing.

Most of the cloud resources the company paid for were distributed to anyone who wanted to experiment with Stability's models, rather than to the startup itself. As a result of this project, more than $2.5 million was spent on computing resources in 4 months.

The company's financial situation became difficult that it could not pay $1 million in AWS bills for July 2023 and did not plan to cover its $7 million debt in August. Google Cloud and CoreWeave also did not receive full payment, and by October they owed $1 in debt .6 million

It is unknown whether these bills were ultimately paid. However, it is reported that Stability AI has decided to defer tax payments to the British government in order to maintain American salaries and avoid legal penalties.

What are the problems with Stable Diffusion developer?

Since founding Stability AI, Emad Mostak has transformed the company into one of the pioneers in the field of artificial intelligence. He took on an ambitious research project that would become known as Stability Diffusion and secured funding for it to be implemented into business.

The software, which could create detailed images from simple text clues, quickly gained popularity. As Forbes reported, 10 million people used it daily. To some enthusiasts, Mostak has become a key advocate for the development of open AI in a field dominated by the closed systems of OpenAI, Google and Anthropic.

However, the startup's success was based in part on a series of exaggerated and misleading claims. Mostak's promises continued even after he raised $100 million in funding at a $1 billion valuation just days after launching Stable Diffusion. Stability AI's failure to deliver on some of its former CEO's ambitious plans, such as creating customized AI models for individual countries, as well as his decision to invest tens of millions in research without a clear business plan, have undermined the company's stability and jeopardized its future.

“This man legitimately wanted to change the world. What he really wanted to do was teach artificial intelligence models to children in Malawi. Was it practical? Absolutely not."

Former Stability AI employee

Mostak's failure to develop a business plan led to the company's failure. Stability AI also failed to secure contracts with clients such as Canva, NightCafe, Tome and the Singapore government that were considering a custom model.

Stability AI's financial troubles intensified, leading to a loss of investor confidence and making it difficult to raise additional funds for AI development. In July 2023, Mostak attempted to launch a plan to raise $500 million and $750 million from Nvidia, Google and Intel. However, these plans quickly collapsed and the company received only $50 million from Intel. Of this amount, only $20 million was paid, which led to the loss of this cooperation. 

Towards the end of 2023, venture fund Lightspeed raised the alarm when it discovered information about Stability AI's finances. He called on Stability management to sell the business. Despite searching for a buyer, the sale never took place.

“In particular, we are surprised and deeply concerned by information reported to us regarding Stability AI's cash position, which contradicts previous discussions on this topic. Lightspeed believes that the company is unlikely to be able to be financed on terms that would ensure its sustainable financial position in the long term."

Brett Nissenberg, General Counsel, Lightspeed

Stability AI has also had trouble retaining its employees. Several key researchers who made significant contributions to the development of the Stable Diffusion model left the company last month for competitors.

The situation came to a head when Mostak announced his decision to resign in order to make changes to Stability AI. According to Forbes , the reason for his departure was precisely the company's debts.

How Stability AI is trying to improve things

Stability AI is now under new management. Chief executive Shan Shan Wong and chief technology officer Christian Laforte will lead the company on an interim basis until a permanent candidate is found for the position.

By December, the startup had moved to a subscription model for commercial use of Stable Diffusion, with prices starting at $20 per month. However, Stability AI is considering another strategy to increase revenue: reselling its computing resources as a managed service.

The plan appears to be to resell Stability AI's debt for GPUs. It could generate $139 million in revenue, provided it doesn't violate its contract with AWS. There are also reports of similar plans in the works to resell CoreWeave GPU power to venture capital firm Andreessen Horowitz.

“The company remains focused on commercializing its world-leading technologies and making them available to partners in the creative industries.”

Christian Laforte and Shan Shan Wong, interim co-chief executives of Stability AI

What's the future for Stability AI?

Although Stability AI's leadership has changed, the company's future is still uncertain. Even if financial stability is restored, the company will continue to face a number of lawsuits related to copyright infringement. The cases were brought by Getty and other artists who claim their creative work was used in a model's training without their consent.