Why Unicorn A.I. Startups Are Suddenly Dying

Microsoft CEO Satya Nadella is poaching top talent in the A.I. industry.

Mustafa Suleyman, CEO of Inflection AI
Mustafa Suleyman, founder and former CEO of Inflection AI. PATRICK T. FALLON/AFP via Getty Images

Last week (March 19), Microsoft (MSFT) announced it had hired Mustafa Suleyman, a co-founder of Google’s A.I. lab DeepMind, to lead the development of consumer A.I. products under a newly formed division called Microsoft AI. The hire also marked an effective end to Suleyman’s startup, Inflection AI, which he co-founded in 2022 and was most recently valued at $4 billion.

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Three days later, Emad Mostaque, the founder and CEO of Stability AI, the startup behind A.I. image generator Stable Diffusion, announced he would step down from the top job—without naming an immediate replacement.

Inflection AI and Stability AI are among a handful of unicorns (startups valued at $1 billion or higher) that rose to prominence in the past year, riding the buzz around ChatGPT and generative A.I. But the hype seems to have peaked, as some of these companies get absorbed by their larger rivals, like Microsoft.

“Thanks to the high cost of development and the underrated challenge of business and product execution, so far generative A.I. is looking less like a sequel to the post-iPhone boom of the 2010s and more like the way big tech will continue its dominance through the 2020s,” the tech journalist Casey Newton wrote in his newsletter Platformer yesterday (March 26).

In a series of posts on X last week, Stability AI’s Mostaque said he’s leaving to pursue decentralized A.I. because one is “not going to beat centralized A.I. with more centralized A.I.,” referring to the ownership structure of  leading A.I. companies such as Google, Microsoft and OpenAI.

Mostaque, a former hedge fund manager in the U.K., founded Stability AI in late 2020. The startup claimed a valuation of $1 billion after a fundraising round in 2022. But in recent months, the company lost a number of top executives and was reportedly burning $8 million a month as of October 2023 without a clear path to profitability, according to Bloomberg.

Stability AI said in a blog post current COO Shan Shan Wong and CTO Christian Laforte will serve as interim co-CEOs following Mostaque’s departure.

“Stability had a kind of ‘reverse OpenAI’ situation where frustration with the CEO built until all his top people quit, he resigned, and then employees were happy again,” Newton wrote in a Threads post yesterday.

Microsoft CEO is poaching top talent left and right

Microsoft is already an early mover in the generative A.I. boom. The software giant is the largest investor in OpenAI and has a $10 billion long-term partnership with the GPT maker. Meanwhile, its CEO Satya Nadella is eager to absorb more talent. When OpenAI’s board abruptly fired its CEO Sam Altman in November, Nadella was the first to offer Altman (and his ally Greg Brockman) a job at Microsoft. OpenAI ended up hiring back Altman and formed a new board.

This time, in addition to Suleyman, Microsoft also hired Inflection’s other co-founder, Karén Simonyan, and several of the company’s employees. Reuters reported that Microsoft agreed to pay Inflection about $650 million in cash for the hires and permission to use the company’s A.I. models in an unusual deal.

Inflection’s main product is a chatbot called Pi. Pi is trained with a focus on conducting conversations in a more human-like way than competing chatbots, the company has said. Inflection has raised about $1.5 billion from investors including Microsoft, Nvidia and LinkedIn co-founder Reid Hoffman. Inflection said following the co-founders’ departure the company will pivot its focus to making its technology available to enterprises and developers.

At Microsoft, Suleyman and Simonyan will report directly to Nadella. Their new division will focus on advancing its Copilot integration of A.I. into an array of Microsoft products.

Why Unicorn A.I. Startups Are Suddenly Dying