Inside Stability AI's bad breakup with key investors March 28, 2024 |
Everyone knew that Stability AI was going through the wringer. There was the steady stream of executive departures, the damning Forbes story from summer, and then, just over this weekend, Stability founder Emad Mostaque's sudden resignation as CEO.
But what we didn't know was what has been playing out behind-the-scenes between Mostaque and Stability's marquee investors, Coatue and Lightspeed. What my colleague Jessica Mathews and I found was a love story gone wrong. At first, Coatue and Lightspeed saw Stability as a vital AI investment, and Mostaque as a star. Then, things went haywire. We write:
"The story of how that relationship fell apart—to the point that, in just one year, Coatue was demanding that Mostaque be fired—is a spectacular business debacle that may cost tens of millions of dollars, dozens of jobs, and the reputations of many of the principal actors involved. But the whirlwind romance that brought together top-tier investors and a startup in the tech industry's most promising sector is also a reminder of the hype, FOMO, and dangerous delusions currently fueling Silicon Valley's love affair with artificial intelligence."
Together, Jessica and I spoke to 20 Stability investors and former employees from both Stability and Coatue, along with Coatue-backed founders. We also reviewed hundreds of pages of documents, including lawsuits, balance sheets, business plans, pitch decks, and correspondence. We even reached Mostaque via email, who told Fortune:
"Nobody tells you how hard it is to be a CEO and there are better CEOs than me to scale a business. I am not sure anyone else would have been able to build and grow the research team to build the best and most widely used models out there and I'm very proud of the team there. I look forward to moving onto the next problem to handle and hopefully move the needle."
In my view, it'll take years (and maybe an HBO show) before we finally put all the Stability puzzle pieces together. But for today, Jessica and I can take you inside a turnkey facet of the story: How an investor-founder romance soured, helping set up the situation Stability is in today—grasping for its future.
It was evident Stability was in turmoil, and now we know more as to why—but, to me, there are still so many unanswered questions. After days of canceled plans, dozens of reporting hours, juggling fact-checks, and waking up around 3 a.m. in a cold sweat, I don't know necessarily what happens from here.
Stability may not know either. Read the whole story here.
Ask Andy…Fortune's Ask Andy column, penned by Bonobos cofounder and Burn Rate author, has debuted! Our very first question-asker is a software developer who wants to know: How do you figure out if a company is legit? The crux of Andy's advice: "Find a company where you believe in the mission. One where you fall in love with the product or service." Read the whole column here.
See you tomorrow,
Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
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Advice on leading teams, building things, and surviving the startup life from Andy Dunn, the founding CEO of Bonobos and Pie and the author of Burn Rate: Launching a Startup and Losing My Mind. Have a question for Andy? Ask it here. |
In the inaugural edition of his Fortune column, Andy Dunn offers advice about doing due diligence and being candid about your own health. |
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VENTURE DEALS
- Lightshift Energy, an Arlington, Va.-based owner and operator of utility-scale battery storage projects, raised $100 million in funding from Greenbacker Renewable Energy Company and Greenbacker Development Opportunities Fund.
- Pelago, a New York City-based digital clinic partner to U.S. businesses and health plans for substance use management, raised $58 million in Series C funding. Atomico led the round and was joined by other existing investors Kinnevik AB, Octopus Ventures, Y Combinator, and new investors Eight Roads and GreyMatter Capital.
- Hume AI, a New York City-based startup and research lab, raised $50 million in Series B funding. EQT Ventures led the round and was joined by Union Square Ventures, Northwell Holdings, LG Technology Ventures, and others.
- Observe, a San Mateo, Calif.-based SaaS observability company, raised $50 million in Series B funding. Sutter Hill Ventures led the round and was joined by Capital One Ventures, Nat Friedman & Daniel Gross, Metaplanet, Madrona, and Snowflake Ventures.
- Qoala, a Kuala Lumpur, Malaysia-based provider of car, motorcycle, property, travel, and health insurance, raised $47 million in Series C funding. PayPal Ventures and MassMutual Ventures and was joined by MUFG Innovation Partners, Ohana Holdings, and existing investors Flourish Ventures, Eurazeo, and AppWorks.
- Skyflow, a Palo Alto, Calif.-based provider of data privacy vaults designed to protect sensitive enterprise data and keep it out of Large Language Models, raised $30 million in Series B funding. Khosla Ventures led the round and was joined by Foundation Capital, Mouro Capital, and Canvas Ventures.
- NewRetirement, a Mill Valley, Calif.-based financial planning platform, raised $20 million in Series A funding. Allegis Capital led the round and was joined by Ulu Ventures, Nationwide Ventures, Fin Capital, Frontier Venture Capital, Cameron Ventures, and others.
- Champ Titles, a Cleveland, Ohio-based provider of digital vehicle title and registration services, raised $18 million in Series C funding. Point72 Ventures led the round and was joined by existing investors W.R. Berkley Corporation, Eos Venture Partners, Guidewire Software, Rev1 Ventures, and others.
- Gather AI, a Pittsburgh, Pa.-based developer of computer vision and AI-powered warehouse inventory technology, raised $17 million in a Series A extension. Bain Capital Ventures led the round and was joined by Tribeca Venture Partners, Dundee Venture Capital, Expa, and Bling Capital.
- Build on Bitcoin (BOB), a London, U.K.-based hybrid Layer-2 powered by bitcoin and ethereum, raised $10 million in seed funding. Castle Island Ventures led the round and was joined by Mechanism Ventures, Bankless Ventures, CMS Ventures, UTXO Management, and others.
- Sprocket Security, a Madison, Wis.-based cybersecurity platform, raised $8 million in Series A funding. Blueprint Equity led the round and was joined by Capital Midwest Fund.
- Victory League, a London, U.K.-based sports entertainment and fan engagement platform for European football fans, raised $4 million from Improbable, LocalGlobe, and others.
- Ionobell, a San Francisco-based developer of silicon battery production technology, raised $3.9 million in a seed extension from Dynamo Ventures and Trucks VC.
- SydeLabs, a Bengaluru, India-based developer of generative AI security and risk management software, raised $2.5 million in seed funding. RTP Global led the round and was joined by Picus Capital and angel investors.
- Advolve, a São Paulo, Brazil-based platform designed to automate the entire digital marketing process with AI and machine learning, raised $1.5 million in pre-seed funding. Valor Capital and Lanx Capital led the round and were joined by Verve Capital and Veredas Partners.
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PRIVATE EQUITY
- One Equity Partners acquired a minority stake in CBM, a Modena, Italy-based manufacturer of agricultural tractor attachment systems. Financial terms were disclosed.
- One Equity Partners acquired the Measurement Solutions business of TechnipFMC (NYSE: FTI). The business is being rebranded as Guidant, a Houston, Texas-based provider of fiscal measurement technologies, facility asset management and automation solutions, and integrated measurement systems. Financial terms were not disclosed.
EXITS
- One Equity Partners and Buckthorn Partners acquired Acteon Group, a Norwich, England-based energy infrastructure company, from KKR. Financial terms were not disclosed.
OTHER
- The ONE Group Hospitality (Nasdaq: STKS) agreed to acquire Safflower Holdings, the parent company of Benihana, an Aventura, Fla.-based restaurant chain, for $365 million.
IPOS
- Marex Group, a London, U.K.-based financial services provider, filed to go public on the Nasdaq. The company posted $1.2 billion in revenue for the year ending December 31, 2023. JRJ Group, BXR Group Holdings, and Trilantic Capital Partners back the company.
FUNDS + FUNDS OF FUNDS
- Percheron Capital, a San Francisco-based private equity fund, raised $1.6 billion for its second fund focused on acquisitions of essential service businesses.
PEOPLE
- Investcorp, a Manama, Bahrain-based alternate investment firm, promoted Abbas Rizvi to chief financial officer.
- Sequoia Capital, a Menlo Park, Calif.-based venture capital firm, hired Dean Meyer as a partner. Formerly, he was with Vine Ventures.
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