Technology How Britain's OpenAI rival Stability AI unravelled

How Britain's OpenAI rival Stability AI unravelled

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Its honeymoon period was shortlived. Stability and other AI companies, such as ChatGPT developer OpenAI, quickly found themselves locked in legal rows with publishers and artists over whether developing their tools by training them on vast troves of images harvested from the internet counted as “fair use”.

Image library giant Getty Images sued Stability in the US and the UK in early 2023, accusing it of misusing up to 12 million images. Stability denied the allegations in a recent High Court filing.

The debate over copyright also caused friction within Stability, prompting one senior staff member to resign in November. Posting publicly after his departure, Ed Newton-Rex said: “Exploiting creators can’t be the long-term solution in generative AI.” He is said to have departed on good terms.

Others were less amicable. Throughout 2023 Stability contended with a steady stream of employee exits. One exasperated ex-employee bemoans the “incompetence” of the start-up’s management. In the days before Mostaque’s resignation, several key Stability researchers responsible for its core technology quit the business.

In an interview with The Telegraph last year, Mostaque admitted to growing pains. He said the company “went big tech too quickly”, rapidly expanding to Silicon Valley where “everything slowed down”. He said it subsequently “moved our entire centre of gravity” back to London.

As well as the copyright dispute, Mostaque has been sued by two early collaborators who accuse him of fraud. In one of the lawsuits, Cyrus Hodes, who was listed as a Stability AI co-founder, accused Mostaque of having “embezzled funds” from the start-up. Hodes sold his stake in Stability to Mostaque for just $100 in 2022, believing the business a failure – before its $1bn valuation.

Stability has claimed Hodes simply has “seller’s remorse” after ditching his shares months before it secured new investment. In a legal filing this month, lawyers for Mostaque and Stability said: “Each of the plaintiff’s claims is meritless.”

Perhaps most dramatic has been the collapse in relations between Stability and its biggest investors. In October 2022, Stability hosted a glitzy launch party in San Francisco to celebrate a funding round led by New York fund Coatue.

But relations quickly soured. Exactly a year later Coatue launched a stunning attack on Mostaque, privately demanding he quit and sell the start-up. The letter also questioned his compensation and payments to senior executives, including his wife – a former director, Fortune reported.

At the time, Stability insisted Mostaque’s leadership had been “instrumental” to its success. One source familiar with the incident describes the attack by Coatue as “appalling”. Mostaque said any such payments were board-approved.

Despite the falling out, Mostaque’s exit was unexpected. His shares give him majority voting control over the business he founded, meaning he could not be forced out.

Stability is now being led by interim co-chief executives Shan Shan Wong, a former investment banker who joined in November, and Christian Laforte, its former technology chief.

Jim O’Shaughnessy, Stability’s chairman, said the appointments give “us confidence in our future and in our ability to emerge from this period as a stronger company”.

Longer term, Mostaque told the Telegraph that Stability’s board was likely to bring in a “new media-oriented CEO to accelerate revenue”. Newly jobless, he plans to focus “on making sure the benefits of these [AI] models are widely distributed and have proper governance”. He is planning new ventures, adding: “Hopefully the UK will have more GenAI successes.”

Somewhat ironically, the new leaders must now stabilise Stability. Thankfully, they have something to build on. Stability’s products have had hundreds of millions of downloads and sources say it is making $5.4m per month in revenues, although it is loss-making.

A key focus is on sharpening up the company’s operations. The co-chief executives had already taken on a large part of the daily running of the business, prior to Mostaque’s exit, and their appointment was given the nod by key investors, including Coatue.

Mostaque is no longer on Stability’s board. A Stability spokesman said: “The company remains focused on commercialising its world-leading technology.”

Meanwhile, rivals are circling. US competitors have expressed an interest in its technology, raising the prospect of a leading UK AI company being snapped up. As Mostaque headed for the exit, Clement Delangue, the boss of $4.5bn AI start-up Hugging Face, tweeted: “Should we acquire Stability?”

A Stability spokesman added: “While several parties have expressed an interest in the purchase of Stability, we are not trying to sell the company.”

Mostaque could not resist a final flourish after his departure. He took to X (formerly Twitter) to post a cryptic image of himself talking to Satya Nadella, the chief executive of Microsoft, prompting speculation he could join the tech giant, which is a key backer of rival OpenAI.

“I’m just messing with you all,” Mostaque followed up. “I’m doing my own thing.”

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