Stability AI Ltd.’s colorful co-founder and Chief Executive Emad Mostaque has resigned, heaping yet more pressure on the troubled British artificial intelligence startup that has recently been hit with a wave of executive departures and money troubles.

Mostaque (pictured) will be replaced by Stability AI Chief Operating Officer Shan Shan Wong and Chief Technology Officer Christian Laforte, who will serve as interim co-CEOs until a permanent successor can be found, the startup said in a blog post late Friday.

Stability AI is one of the most prominent generative AI startups around, popularizing the concept of text-to-image generation with its Stable Diffusion model, which helped kick off the frenzy around AI at about the same time as OpenAI’s ChatGPT rose to prominence. It was an early hit with investors, being valued at more than $1 billion in 2022, and with its initial success it expanded into other generative AI areas, such as text and video generation.

However, the company has since begun running into trouble. In a post on X, Mostaque hinted that he was displeased with the direction it has been taking in recent months, saying that “you can’t beat centralized AI with more centralized AI,” referring to the ownership structure of top AI startups such as OpenAI and Anthropic PMC.

In addition, Mostaque said it was his decision to step down from his role, as he held the most controlling shares in the company. “We should have more transparent & distributed governance in AI as it becomes more and more important. It’s a hard problem, but I think we can fix it,” he stated, adding: “The concentration of power in AI is bad for us all. I decided to step down to fix this at Stability & elsewhere.”

Stability AI may have created one of the most popular text-to-image generation models, but the popularity of its offerings has apparently not translated into financial success. Last year, Bloomberg reported that the startup was looking at selling itself as investors pressured its management over the state of its finances.

The company reportedly held early discussions with multiple companies over a possible acquisition, but nothing appears to have come of these talks so far. The report claimed that it was spending $8 million per month with little payoff, with the bulk of those costs presumed to be compute expenses.

The startup has also seen an incredibly high turnover among its staff. Forbes reported just five days earlier that a number of key members of its AI research team responsible for developing Stable Diffusion were leaving the company. According to Forbes, Robin Rombach, who led the team, and fellow researchers Andreas Blattmann and Dominik Lorenz all left the company.

Prior to their departure, Stability AI’s vice presidents Christian Cantrell (product), Scott Draves (engineering), Patrick Hebron (research and development) and Joe Penna (applied machine learning) have all left in the past year. Others to quit the company include former Chief Researcher David Ha, plus Vice President of Audio Ed Newton-Rex, who reportedly quit in November in protest over the company’s treatment of copyrighted data.

Some of Stability AI’s main investors, including Coatue and Lightspeed Venture Partners, have also resigned their seats on its board of directors. Coatue was reportedly one of the main instigators pushing for Stability AI to sell itself and for Mostaque to resign.

Bloomberg’s report came after Forbes said in July 2023 that the startup was struggling to pay its staff’s wages and payroll taxes. Forbes also claimed that Amazon Web Services Inc. had threatened to shut down the company’s servers over its unpaid cloud bills, though the startup publicly denied that story.

Consolidation on the way for generative AI?

The exact reason for Mostaque’s departure may never be known, but his comments about the concentration of power in AI suggest that his decision is most likely a response to pressure from investors or the company’s board to seek out an acquisition by a much larger vendor, said Charles King of Pund-IT Inc.

“But it’s difficult to fault Stability AI’s investors given its reported financial issues and compute expenses,” he added. “After all, venture firms aren’t charitable entities.”

The analyst believes that Mostaque’s fears about the concentration of power in AI are likely well-founded, given that the likes of Microsoft Corp., Google’s parent Alphabet Inc. and a few other players appear to be expanding their dominance in the industry.

“These companies have the financial, compute and intellectual resources to continue accelerating, while smaller companies are left behind, praying to be acquired,” King said. “We’ve head this song in tech before in areas such as e-commerce, search and cloud computing, and the results are rarely idyllic for markets and consumers. Mostaque’s decision to depart Stability AI and his veiled warning are well worth consideration.”

Holger Mueller of Constellation Research Inc. said it’s equally difficult to know exactly how bad Stability AI’s financial situation really is. But if the reports are true, he thinks it could well mean the start of a shake up in the nascent generative AI industry.

“This might mark the start of the first wave of consolidation among first-generation generative AI vendors like Stability AI,” the analyst said. “Funding is crucial for these startups because training and running AI is incredibly expensive, and these kinds of executive shakeups can influence the confidence of investors.”

On the other hand, Mueller said, there could be some positives that arise from Mostaque’s departure. “His tweets suggest that talent is starting to be recycled through the generative AI startup ecosystem, and that may not be a bad thing as startups of different sizes and levels of maturity require different skills,” he pointed out. “But we should pay attention to where the talent is going — is it following the investor’s money or not?”

Mostaque himself has attracted controversy at times. Last year, he was sued by another of Stability AI’s co-founders, Cyrus Hodes, who alleged that Mostaque duped him into selling his stake in the company just weeks before it closed on a major funding round. Mostaque disputed the allegation.

More recently, Mostaque has made a number of barely believable statements, claiming to multiple individuals that he previously worked as a spy for the British government, without offering any evidence to support such claims.

Photo: Tom Bilyeu/YouTube