Stability AI co-founder claims he was duped into selling stake for $100

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The co-founder of synthetic intelligence firm Stability AI is suing the corporate and its boss, claiming he was duped into promoting his stake within the $1bn start-up for simply $100.

Cyrus Hodes, who co-founded Stability AI with present chief govt Emad Mostaque in 2020, claims within the swimsuit filed on Thursday that Mostaque bought his whole 15 per cent stake after persuading him the “firm he had helped construct was primarily nugatory”.

However in August 2022, three months after shopping for out his co-founder, Mostaque led a $101mn funding spherical which gave the UK-based firm a post-money valuation of $1bn. Stability AI is now trying to boost new capital at a valuation of $4bn, based on the swimsuit, driving a wave of curiosity in generative AI triggered by OpenAI’s launch of ChatGPT late final yr.

Hodes’ shares, had he nonetheless held them, could possibly be price about $500mn if Mostaque attains his goal valuation. 

“Mostaque’s buy of those shares from his co-founder and minority shareholder for a mere $100.00 epitomises company greed at its worst and easily shocks the conscience,” the swimsuit says, which was filed in San Francisco.

“The swimsuit is with out benefit and we’ll aggressively defend our place,” Stability AI mentioned.

Stability AI, which is headquartered in London and has operations in San Francisco payments itself because the “world’s main open supply generative AI firm”, which helps researchers growing AI fashions. 

Stability AI’s finest recognized contribution has been to Secure Diffusion, a software which might create photorealistic photographs from textual content inputs and which has change into a viral hit since its launch final yr.

The know-how underpinning Secure Diffusion was developed by a gaggle of researchers in Munich, and at Runway, an utilized AI analysis firm. Stability AI supplied computing energy and coaching information to help the efforts.

Hodes has labored on AI tasks for one of the best a part of a decade, with roles together with advising the United Arab Emirates and the OECD on the nationwide implications of the know-how.

In keeping with the swimsuit, he met Mostaque at a 2019 summit in Dubai and the 2 fashioned a friendship which later turned a enterprise relationship.

Within the early days of Stability AI, Hodes had been engaged on growing a generative AI software to assist governments higher reply to the Covid-19 pandemic, a venture Hodes claims was finally unsuccessful as a result of Mostaque was as an alternative targeted on constructing the text-to-image software finally utilized by Secure Diffusion.

The swimsuit claims that Hodes started to have issues about how Mostaque was working the corporate — it alleges Mostaque used funds from Stability AI to pay lease on his household’s “lavish London house” — and determined to depart.

“Involved about his private legal responsibility and fame in mild of Mostaque’s misconduct and failure to carry out, and led to imagine that the corporate had no actual worth as a consequence of Mostaque’s failure to ship the [Covid] venture, Hodes determined to extricate himself from Stability AI,” the swimsuit claims.

Mostaque and Stability AI “by no means disclosed their discussions with enterprise capital companies to Hodes, and even that Stability AI’s new marketing strategy concerned text-to-image technology,” it provides.

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