Black Forest Labs: one-year-old German start-up challenges AI giants

German start-up Black Forest Labs has quietly raised more than $450mn since it was founded last year, as the low-profile group quickly emerged as one of the world’s top developers of artificial intelligence image generation.

The group, which was founded in the medieval town of Freiburg, has tripled its valuation in little more than a year to $3.25bn in its latest $300mn funding round. The cash will fuel its plan to take on Google and ByteDance in a market that promises to upend industries from advertising to Hollywood.

While other AI start-up leaders such as OpenAI’s Sam Altman have sought the limelight, Black Forest co-founder and chief executive Robin Rombach told the Financial Times he is keen to “let the product speak for itself”.

In just 15 months, the group has already struck a lucrative deal with Meta as well as partnerships with creative toolmakers Adobe and Canva. Rombach said it plans to use the new investment to boost its computing infrastructure and build out its commercial team.

Black Forest is one of the few European companies developing its own AI models, alongside Paris-based Mistral. Rombach said being headquartered outside the “super hype” of San Francisco — where AI groups are raiding each other’s talent with huge pay offers — is “the best thing that we have done so far”, as it helps the team stay “super focused”.

Its fundraising comes as demand for image-editing AI systems has exploded over the past year, driven by big advances in the technology.

Many AI researchers believe Black Forest’s Flux models rival Google’s Nano Banana and ByteDance’s Seedream image systems — despite both having larger computing resources, thousands of engineers and extensive video libraries from YouTube and TikTok to provide training data.

Investors say this is due to the expertise of Rombach and his Black Forest team, who previously developed a breakthrough technology for image generation known as Stable Diffusion.

“In the summer of 2022 when the internet blew up with hyper-realistic image generation, that was in no small part as a result of their work,” said Nathan Benaich, an early investor in Black Forest at Air Street Capital.

Rombach met the team that would later become his co-founders years earlier, while they were studying for their PhDs at LMU Munich and the University of Heidelberg. They put out a series of research papers focused on the AI technique of “latent diffusion”, which Rombach describes as “basically the foundation for a lot of the [generative AI] technology that is being built within this space”.

He notes that his university’s limited computing equipment forced him and his classmates to innovate. “We were running on super tiny GPUs on consumer grade hardware,” he said. “To get really good performance out of that, we had to come up with an algorithm that was more efficient.”

Early traction with the academic and research community spurred Rombach to scale up the technology for commercial use, joining London-based start-up Stability AI alongside fellow AI researchers from LMU and Heidelberg in 2022.

“Only a handful of people on the planet know how to advance the frontier of general [AI] models. Robin and team as the inventors of latent diffusion have that advantage,” said Anjney Midha, a venture partner at Andreessen Horowitz, whose new firm AMP jointly led Black Forest’s latest financing alongside Salesforce Ventures.

But after Stability AI ran into difficulties, Rombach and several of his colleagues left in 2024 to found Black Forest. It quickly raised funding from investors including Andreessen Horowitz and General Catalyst.

Jeannette zu Fürstenberg, who leads General Catalyst’s European business, said staying in Freiburg helped the start-up keep “grounded”. “It’s a very distinct group of people,” she said. “The best companies become an almost cult-like tight-knit group.”

What started as a team of about 10 people has now grown to 50 full-time staff, mainly in Freiburg with a growing presence in San Francisco.

Rombach said releasing some versions of its Flux model under an “open source” licence, meaning they can be used and modified freely for certain applications, has been vital for winning over developers and giving customers more control over their data and intellectual property. The cost for developers to access Flux is also significantly cheaper than Google’s Nano Banana.

Improvements to the latest Flux model include preserving individuals’ likenesses as the AI technology places them in realistic or imagined situations, as well as combining several different images to create a new one.

One person who has worked with members of Black Forest’s team warned that while the start-up’s small size gave it a key advantage in speed, it may lack a long-term technical edge.

“The people running this lab have made, quite objectively, very big contributions to the field,” the person said. “Other than that, in generative AI, it’s hard to survive as a small lab.”

One early investor, Michael Ovitz, co-founder of Creative Artists Agency, has helped Rombach and his team make connections in Hollywood, even though many studios are wary of AI tools following the 2023 writers’ strike.

“We treat IP as a pretty serious matter,” Rombach said. “Our goal is to work with creators and creatives to augment them and help them create something novel, not replace something that exists.”