Stability AI

Stability AI, creator of Stable Diffusion, raised $270M but struggled to build a sustainable business around its open-source model. CEO Emad Mostaque resigned in March 2024 amid reports of financial mismanagement, declining revenue, and employee departures. The company had revenues of approximately $60M but was spending far more. The core challenge: by open-sourcing their model, Stability made it easy for competitors and users to build on top without paying. While this drove adoption, it undercut monetization. The company explored various revenue streams—API access, enterprise licenses, custom models—but couldn't achieve profitability. The lesson: open-source AI is great for adoption but creates fundamental business model challenges.