The startup raised a convertible note from investors including Ashton Kutcher’s firm — but hasn’t closed new funding at a higher valuation.
(Bloomberg) — Stability AI, the artificial intelligence startup that has been struggling to raise funding at a $4 billion valuation, secured a convertible note from investors, according to people with knowledge of the matter.
The convertible note deal, which raised less than $25 million, happened this spring after Stability AI, distributor of the Stable Diffusion image-generation tool, was said to be seeking to quadruple its valuation. Stability AI spokesman Motez Bishara denied the reporting, and said that the company has not been struggling to raise money.
“We have not been actively fundraising or launched a formal round, and have not had fundraising problems,” Bishara said in a statement. Stability AI will hit more milestones over the coming weeks, he said. “The best time to raise is with momentum, which is accelerating in both the AI space and the company,” Bishara said.
Earlier this year, Stability AI didn’t close a deal to raise money at a $4 billion valuation after conversations with venture capital firms, multiple people said, and it isn’t currently in talks to raise funding at a valuation that high. The people familiar with the situation asked not to be identified discussing private conversations. Stability AI still has the $1 billion valuation it landed when it raised $101 million in seed funding last year.
By raising a convertible note, the company took advantage of a popular tool for startups to bring in cash between traditional fundraising deals. A convertible note is debt that converts to equity, often at the time of the next funding round, and doesn’t come with a new valuation. Sound Ventures, Ashton Kutcher’s VC firm, participated in the deal, multiple people said. Sound Ventures didn’t respond to a request for comment, but has said publicly that its new AI fund has a stake in Stability AI.
Stability AI has had a tumultuous month so far. A report in Forbes in early June described dysfunction at the company, and prompted Chief Executive Officer Emad Mostaque to post a denial and a lengthy response on his blog. Since then, the company’s head of research resigned, and it terminated its chief operating officer as part of a broader shake-up, Mostaque said.
On stage last week at the Bloomberg Technology Summit, Mostaque said the company was not currently aiming for more funding: “We’re not trying to raise more, but we have constant interest.” He said he had received eight messages the day before from people interested in investing in the company. Bishara said that since the Forbes report was published, “the amount of incoming interest has actually increased.”
Mostaque also addressed reporting from the article, which said that he had “a history of exaggeration.” Mostaque said, “I’m doing the best I can,” and that his genuine beliefs can come off as exaggerations.
“I have a very definitive view of the future,” he said. “I think that shocks people because they can’t deal with the exponentials.”
–With assistance from Rachel Metz.
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