Exploring the Complex Relationship Between Stability AI’s Founder and Tech Investors Coatue and Lightspeed

Exploring the Complex Relationship Between Stability AI’s Founder and Tech Investors Coatue and Lightspeed: Emad Mostaque, the founder and CEO of Stability AI, disappeared in December 2022. After a pressure campaign by investors, Mostaque resigned from the company.

With Stable Diffusion, an open-source AI model that can create images of almost anything a user can type, Mostaque became one of the early players in the generative AI boom.

It is a spectacular business debacle how a top-tier investor’s relationship with a startup in the tech industry’s most promising sector collapsed.

Stability’s sudden rise from obscurity coincided with Mostaque’s partnership with Coatue and Lightspeed. Malachi Price introduced himself to Mostaque ten days after the initial beta launch, and Mostaque described Stability as the “only competitor” to OpenAI’s DALL-E 2.

In 2022, Coatue, a hedge fund based in New York, signed more than 150 venture capital deals. Mostaque had meetings with all the biggest names in venture capital, including Microsoft CEO Satya Nadella.

Mostaque had a term sheet from Coatue after meeting with David Cahn, and within ten days had secured $50 million at a $500 million valuation. Lightspeed became a lead investor, and mostaque had secured $101 million in total funding.

In 2017, Stability was valued at $100 million from smaller investors, but it had a backlog of payments with AWS, and it wasn’t until Coatue and Lightspeed stepped in that “everything was in order.”.

A who’s who of Silicon Valley’s royalty attended Stability AI’s launch party on October 17, 2022, to celebrate the company’s $101 million seed round, at a whopping $1 billion valuation. Mostaque asked the crowd, “Is Stability hype or real?”?”

At Stability’s afterparty at Tequila Mockingbird, Coatue cofounder Thomas Laffont was among the revelers. Coatue footed a portion of the party bill.

Coatue partner Sri Viswanath joined Stability’s board after the funding round and took an active role in hiring the company’s vice president of engineering and chief people officer.

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A former employee says the company experimented with freemium products and paid APIs, but didn’t have a clear business strategy.

Stability’s early advisor Dan Jeffries helped shape the company’s early strategy, but he asserts that his suggestions weren’t used.

Mostaque’s wife, Zehra Qureshi, was outspoken and could be extraordinarily particular, but without her, Stability would never have been founded.

Its world-leading generative AI models have been downloaded over 150 million times on Hugging Face.

As Stability’s point-person after Cahn left the firm for Sequoia, Coatue partner Viswanath seemed less than enthusiastic about the startup he had helped tie his firm to.

A person familiar with the situation said that Viswanath told the company he thought Mostaque should hire a new CEO because of his doubts.

Stability met with Altimeter, Redpoint, and Maverick Ventures, but the market wasn’t interested.

Mostaque remained avoidant when asked about a data room for prospective investors. The data room was never created, and potential investors who signed non-disclosure agreements did not have access to it.

In addition to having Asperger’s syndrome, Mostaque, who was born in Jordan but raised in Bangladesh and the U.K., takes a few days off the grid once a quarter to reset.

As Nathan Lile fiddled with the AirPods, he realized Mostaque had forgotten to get a new SIM card as he traveled with Mostaque.

In the wake of Forbes’ bombshell story, Mostaque’s public image took a major hit. The relationship between Mostaque and Stability’s investors changed almost immediately.

Before the Forbes story ran, Mostaque’s wife left the board and Scott Trowbridge replaced her.

VC firm Lightspeed, which had backed Snap, was concerned about Stability’s financials, according to Fortune’s review of documents.

The relationship between Mostaque and his investors turned antagonistic as 2023 came to an end. Coatue and Lightspeed left the board, Gaurav Gupta gave up his observer position, and Coatue demanded Mostaque step down and negotiate a sale.

Mostaque’s camp viewed Coatue’s move as a power grab and a betrayal.

Because Mostaque retained board control and there was no mechanism to remove him, Coatue could not unseat him despite its significant investment.

Despite Mostaque’s ability to hang on, the leaked vote of no confidence in his leadership made it difficult for the company to progress, particularly as competition heated up in the text-to-image generation industry.

The startup’s official position on the kind of training data that models should use doesn’t align with Ed Newton-Rex’s. A succession of executives and employees headed for the door.

Mostaque cited the personal toll of running a startup while suggesting that he was preparing to jump into another venture after a year of tension between him and his investors.

Hugging Face was in acquisition talks with Stability AI, but the deal failed due to Mostaque’s resignation.

Stability AI’s investor says the company’s chances of long-term success are no longer as bright as they once were, as a wave of employee departures and a breakup with its key investors make new investors unlikely.

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