Sean Parker and Eric Schmidt Give a Small But Much-Needed Lifeline to Embattled Stability AI

Stability AI is the latest addition to former Google CEO Eric Schmidt's vast A.I. startup portfolio.

Stability AI, the startup behind the popular A.I. image generator Stable Diffusion, has struggled to keep pace with rivals in the cutthroat A.I. race. Now, three months after its founder and CEO Emad Mostaque resigned, the company has received a small but much-needed injection of cash from a group of investors that include former Google (GOOGL) CEO Eric Schmidt and ex-Facebook (Meta (META)) president Sean Parker. The startup has also appointed a new CEO, Prem Akkaraju, who previously led the visual effects company Weta Digital.

The investors injected about $80 million to help stave off Stability AI’s financial issues, as first reported by the Wall Street Journal. Stability AI’s image generator competes with the likes of OpenAI’s DALL-E. While the startup reached the unicorn status ($1 billion valuation) in 2022, it has struggled to bring in substantial revenues and lost more than $30 million in the first quarter of this year.

In addition to the $80 million investment, the investors have reportedly cut a deal with Stability AI’s cloud computing providers and suppliers to forgive $100 million owed by the startup and an additional $300 million in future obligations. Besides Schmidt and Parker, the investor group includes long-time supporters of Stability AI like venture capital firms Coatue Management and Lightspeed Venture Partners.

Eric Schmidt adds Stability AI to his A.I. startup investment portfolio

Stability AI is just the latest A.I. company to catch the attention of Schmidt, who has stakes in at least 57 A.I. startups as of September 2023, according to Bloomberg. His A.I. startup portfolio includes Inflection AI, formerly led by Mustafa Suleyman, who is now Microsoft (MSFT)’s A.I. chief; Mistral AI, founded by former DeepMind and Meta employees; and Augment, an A.I.-powered coding platform created by former Microsoft software developer Igor Ostrovsky. Schmidt has additionally helped fund A.I.-focused nonprofits like the research lab Kyutai and Future House, the latter of which is focused on building A.I. assistants for lab work.

Parker, who co-founded the music sharing service Napster, is additionally set to join Stability AI’s board as executive chairman. Going forward, the startup will emphasize growth in areas like content creation and production tools, custom enterprise models and business-to-consumer applications, according to a statement from Parker. “The market opportunity in generative media—spanning images, video, 3D, voice and music—is just getting started,” he said. Akkaraju, Coatue Management’s chief operating officer Colin Bryant and Dana Settle, co-founder of venture capital firm Greycroft, will also join the startup’s board as new members.

Akkaraju’s predecessor, Mostaque, stepped down in March amid claims of mismanagement and skepticism surrounding the validity of statements he made regarding the company’s achievements. Interim CEOs Shan Shan Wong and Christian Laforte will remain with the startup as chief operating officer and chief technology officer, respectively, the company said.

“Stability AI is the backbone of the visual A.I. ecosystem,” said Akkaraju in a statement, adding that the startup is prepared to meet demands for A.I. solutions from large-scale corporations and is “now in an ideal position to spearhead the convergence of generative AI and studio content.”