Startup Behind AI Image Generator Stable Diffusion Is In Talks To Raise At A Valuation Up To $1 Billion

Tech Industry

With the image generator Stable Diffusion, you can conjure within seconds a potrait of Beyoncé as if painted by Vincent van Gogh, a cyberpunk cityscape in the style of 18th century Japanese artist Hokusai and a complex alien world straight out of science fiction. Released to the public just two weeks ago, it’s become one of several popular AI-powered text-to-image generators, including DALL-E 2, that have taken the internet by storm.

Now, the company behind Stable Diffusion is in discussions to raise $100 million from investors, according to three people with knowledge of the matter. Investment firm Coatue expressed initial interest in a deal that would value the London-based startup Stability AI at $500 million, according to two of the people. Lightspeed Venture Partners then entered talks — which are still underway — to invest at a valuation up to $1 billion, two sources said.

Stability AI, Coatue and Lightspeed declined requests for comment.

The London-based startup previously raised at least $10 million in SAFE notes (a form of convertible security popular among early-stage startups) at a valuation of up to $100 million, according to one of the sources. An additional fourth source with direct knowledge confirmed Stability AI’s previous round. Much of the company’s funds came directly from founder and CEO Emad Mostaque, a former hedge fund manager. News of the prior financing was previously unreported.

By nature of being open source, Stability AI’s underlying technology is free to use. So far, the company does not have a clear business model in place, according to three of the sources. However, Mostaque said in an interview last month with Yannic Kilcher, a machine learning engineer and YouTube personality, that he has already penned partnerships with “governments and leading institutions” to sell the technology. “We’ve negotiated massive deals so we’d be profitable at the door versus most money-losing big corporations,” he claims. The first version of Stable Diffusion itself cost just $600,000 to train, he wrote on Twitter — a fraction of the company’s total funding.

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Mostaque, 39, hails from Bangladesh and grew up in England. He received a master’s degree in mathematics and computer science from Oxford University in 2005 and spent 13 years working at U.K. hedge funds. In 2019, he launched Symmitree, a startup that aimed to reduce the cost of technology for people in poverty; it shuttered after one year, according to his LinkedIn profile.

He then founded Stability AI in late 2020 with the mission of building open-source AI projects. According to its website, text-to-image generation is only one component of a broader apparatus of AI-powered offerings that the company is helping to build. Other open-source research groups it backs are developing tools for language, audio and biology.

“We’ve negotiated massive deals so we’d be profitable at the door versus most money-losing big corporations.”

Emad Mostaque, Stability AI founder and CEO

Stable Diffusion — created in collaboration with RunwayML, a video editing startup also backed by Coatue, and researchers at the Ludwig Maximilian University of Munich — has generated by far the most buzz among the company’s projects. It comes as AI image generators entered the zeitgeist this year, with the release of OpenAI’s DALL-E 2 in April and independent research lab Midjourney’s eponymous product in July. Google also revealed a text-to-image system, Imagen, in May, though it is not available to the public. Mostaque and his peers have said that the existing technology only represents the tip of the iceberg of what AI art is capable of creating: Future use cases could include drastically improved photorealism, video and animation.

These image generators are already facing controversy: Many of them have been trained by processing billions of images on the internet without the consent of the copyright holder, prompting debate over ethics and legality. Last week, a testy debate broke out online after a Colorado fine arts competition awarded a top prize to an AI-generated work of art.

Moreover, unlike DALL-E and Midjourney, which have restrictions in place to prevent the generation of gory or pornographic images, Stable Diffusion’s open source nature allows users to bypass such a block. On 4chan, numerous threads have appeared with AI-generated deepfakes of celebrity nudes, while Reddit has banned at least four communities that were dedicated to posting “not safe for work” AI imagery made using Stable Diffusion.

It’s a double-edged sword for Stability AI, which has accumulated community goodwill precisely due to its open source approach that gives its users full access to its code. The company’s website states that the company is “building open AI tools,” a mission that mirrors the initial intent of OpenAI to democratize access to artificial intelligence. OpenAI was launched as a nonprofit research organization by prominent technologists including Sam Altman and Elon Musk, but upon accepting a $1 billion investment from Microsoft in 2019, it became a for-profit business. The move led it to focus on commercializing its technology rather than making it more widely available, drawing criticism from the AI community — and Musk himself.

Stability AI has been a for-profit corporation from its inception, which Mostaque has said is meant to allow the open source research to reach more people. In an interview with TechCrunch last month, he said that the company was fully independent. “Nobody has any voting rights except our 75 employees — no billionaires, big funds, governments or anyone else with control of the company or the communities we support,” he said.

At a $1 billion valuation, Mostaque would be ceding up to 10% of the company to the new financiers. Venture capital investors who take significant stakes in startups typically ask for board positions so they can influence the decisions the company is making using their money. Lightspeed, which manages $10 billion of assets, and Coatue, which is in charge of $73 billion, both have a track record of taking board seats, though it’s unclear if that will be the case with Stability AI.

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