Stability AI is a startup company engaged in developing text-to-image generation through the use of AI. Its website boasts that with its product, “Stable Diffusion XL,” “you can create descriptive images with shorter prompts and generate words within images. The model is a significant advancement in image generation capabilities, offering enhanced image composition and face generation that results in stunning visuals and realistic aesthetics.” It has apparently raised £89M in two funding rounds.
But according to a lawsuit filed July 13, one of the co-founders—before the first funding round—sold his 15% equity stake in the company for a mere $100. Why? According to him, the other co-founder procured this sale by making false and misleading statements about the company. Specifically, the plaintiff alleges that the co-founder defendant never disclosed the discussions with venture capital firms to invest in Stability AI, or that Stability AI’s new business plan involved text-to-image generation. Instead, he misled plaintiff about the value of Stability AI’s shares, leading plaintiff to believe that they were nearly worthless. The case is filed in federal court in San Francisco.
Just as with past waves of tech company valuation spikes, the current boom in AI venture investing is sure to bring with it a spate of co-founder litigation.