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Are founders also good CEOs?
Founders are more successful than hired CEOs, Stability AI's founder gets replaced with a new CEO, and more...
SearchVentures
December 25, 2024
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Founders always outperform others
Hired CEOs often struggle to outperform the founders they replace, despite their greater experience and market understanding.
What sets founders apart from seasoned CEOs?
This Week’s Trends
Founders are more successful than hired CEOs
Stability AI founder’s resignation as CEO
$3M funding for a vertical takeoff plane and more
Read Time 3 minutes
The Startup Trend
Founder vs Hired CEOs
Among all the unicorns founded in the past 15 years, 65% still have the original founder as the CEO. These firms are found to consistently outperform others in market valuation and long-term stock performance.
> Founder CEOs are likely to have a deeper commitment, allocating more resources to R&D and capital expenditures.
> Over the past 5 years, 42% of founder led startups have shown notable revenue growth, compared to 35% of startups led by external CEOs.
💡 Despite this, external CEOs often see higher survival rates and better risk management, especially when the leader has prior startup experience.
Startup Feature
Stability AI founder’s resignation
Stability AI, the London-based AI startup, gained widespread recognition in 2022 with the release of Stable Diffusion, an open-source tool aimed at democratizing AI. Despite an early valuation of $1 billion following a $101 million funding round, the company faced mounting financial and operational challenges by 2024. These issues ultimately led to the resignation of founder and CEO Emad Mostaque, as investors pushed for leadership focused on profitability and commercial growth.
“I created Stability AI to give everyone access to cutting-edge AI tools.”
Investor and founder conflict
Emad Mostaque, founder and former CEO of Stability AI
Stability AI’s open-source philosophy helped it attract early investment, but cracks began to show as financial pressures mounted. By early 2024, the startup was generating less than $5 million in revenue while incurring over $30 million in quarterly losses. Debt from cloud computing and operational expenses ballooned to nearly $100 million. Investors, including Lightspeed Venture Partners and Coatue Management, expressed growing frustration with Mostaque’s long-term vision, which they felt prioritized innovation over urgent financial concerns.
“There was a growing realization that Stability AI’s visionary approach wasn’t aligning with the realities of a challenging market.”
Investor pressure reached a breaking point in March 2024, leading to Mostaque’s resignation as CEO. Officially, Mostaque cited plans to focus on decentralized AI projects, but insiders indicated that investors had lost confidence in his ability to address the company’s financial instability. Shan Shan Wong and Christian Laforte were named interim co-CEOs to stabilize the startup during the transition.
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Rebuilding with new leadership
In June 2024, Stability AI secured $80 million in funding from Greycroft, Sound Ventures, and other investors. Alongside the funding, the company announced significant leadership changes. Prem Akkaraju, a seasoned executive from Weta Digital, was appointed CEO, while Sean Parker, co-founder of Napster and former president of Facebook, joined as Executive Chairman. These changes marked a clear pivot toward a more commercially focused strategy.
“Our focus is now on balancing innovation with sustainable business practices.”
Stability AI now aims to generate revenue through partnerships and monetizable applications, moving away from its heavy reliance on open-source tools. The leadership team has prioritized building scalable solutions and exploring new market opportunities to ensure financial stability and growth.
Prem Akkaraju, new CEO of Stability AI
What’s Next for Stability AI
The leadership overhaul and strategic pivot highlight the challenges of transitioning from visionary ambitions to operational sustainability. For Stability AI, the coming years will determine whether these changes can restore investor confidence and position the startup as a competitive force in the crowded AI market.
"Stability AI was too important to the ecosystem to fail."
The company’s story underlines the pressures startups face when balancing innovation with financial accountability. While Stability AI’s new strategy offers hope for a turnaround, its ability to execute and adapt remains crucial to its survival.
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Headline News
This Week In Startups ✍️
Founders
> BVNK, a UK based fintech startup, announced the successful closing of its $50 million Series B funding round.
> Corsmed, a Swedish MRI producing startup has secured $3.5 million in Seed funding, to manufacture innovative ways to reduce scan times.
> Zuri, Czech developer of hybrid Vertical Take-Off and Landing aircraft, has raised a further €3 million investment in its recently concluded pre-Series A funding round.
Investors & VCs
> Fly Ventures has closed its €80 million Fund III to support deep tech founders in Europe.
> Here is Sifted’s list of all the new first-time European VC funds of 2024 as of November 14.
> Startup associations call for the creation of a European Tibi to boost VC investments from pension funds and insurers.
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Cheers,
Odin Lund & Hari Mohandas
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