Intel-Backed AI Startup Reaches $1B Valuation

Intel Invests in Stability AI amid Board Wrangles

Stability AI, an AI startup that has been facing human resource challenges and concerns about slow revenue growth amid huge expenses, remains an attractive investment prospect. Chip giant Intel is the latest to show strong interest in the startup best known for developing the Stable Diffusion image-generating software that creates realistic-looking images from a few words of prompts.

Intel – Stability AI Investment

Intel reportedly participated in a financing round that rose close to $50 million in the form of convertible notes.  According to the company’s spokesperson, the company has received interest from major venture capital and strategic investors.

The latest capital raise comes a year after the startup raised $101 million in a seed round that valued it at $1 billion, making it one of the most valuable startups. Since then, the company’s growth has slowed, and its valuation is believed to have dropped amid a seemingly endless string of headwinds.

The London-based startup has been spending millions of dollars a month on expenses believed to be more than $8 million. The expenses include computing, workers’ salaries, and research and development spending. On the other hand, CEO Emad Mostaque confirmed in July of last year that the startup’s projected annual revenue was more than $10 million. Still, that number is believed to have dropped significantly.

Stability AI is undergoing one of the most challenging periods, having already shed more than half a dozen senior employees.  The company’s general counsel and human resource chief tendered their resignation in October, less than two months after the company highlighted members of its leadership team. The departures complicate the company’s transformation from a flashy startup to an established artificial intelligence.

Stability AI Board Challenges

Disagreements on the board are the latest headwind threatening the startup’s future and sentiments in the burgeoning sector. Investment firm Coatue Management with $50 million worth of stakes has had issues with the current management. The investment firm has been pushing to add a co-CEO or president, a move that confirms its doubt about the current regime.

The bad blood between the investment firm and Stability AI became earlier in the year when general partner Sri Viswanath skipped the planned board meeting and opted to send the firm’s lawyer. Coatue exiting its position on the board in October affirmed the tensions and came after Intel made a strategic investment in the company.

Coatue is also believed to have exited the board because it holds a large stake in Advanced Micro Devices, a major Intel competitor. The board tensions were further confirmed with Lightspeed Venture Partners Gaurav Gupta leaving his role as a board observer amid differences in opinion with management. The direction Stability AI has been pursuing has also been a concern for the board members.

The board struggles do not come as a surprise as CEO Mostaque has often been a controversial leader, with most people who have worked with him questioning some of his statements. The executive has been questioned for presenting blue-sky conversations about partnerships and products before reaching an actual agreement

Co-founder Cyrus Hodes also sued Stability AI over what he claims is being tricked into selling shares for cheap shortly before the company clinched a billion-dollar valuation.

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