Modal Labs is close to securing a $750 million funding round led by Accel at a $15.75 billion valuation that includes the new investment, according to a source familiar with the deal. The New York-based AI inference infrastructure company has not previously had the size of the round reported, though Axios and Bloomberg have published other details of the deal. The new round would more than triple Modal's valuation from the $4.65 billion it reached when it announced a $355 million fundraise just four months ago.
The deal arrives as demand surges for inference services, the process of running an AI model that has already been trained to generate outputs, especially from customers relying on open-source models. Other inference startups are also in talks to raise fresh capital at much higher valuations. Baseten is nearing an infusion at a $26 billion valuation, double what it was worth in June, according to Bloomberg. Fireworks and Fal, a startup providing inference for video and image generation, have also spoken with investors about new rounds that would significantly increase their valuations, according to The Information.
Revenue at these companies has grown quickly, but margins remain thin, largely because acquiring or leasing compute is very expensive. Fireworks announced in July that its annualized revenue had reached $1 billion, a fivefold increase from the year before. Multiple inference-focused startups are expected to hit the same revenue milestone by year's end, according to the source.
Modal was founded in 2021 by CEO Erik Bernhardsson and CTO Akshat Bubna. Bernhardsson, who is Swedish, spent more than 15 years building data teams at companies including Spotify, where he helped build the music-streaming service's recommendation system, and Better.com, the online mortgage lender, where he served as chief technology officer. Bubna studied math and computer science at MIT and was an early staff engineer at Scale AI, the data-labeling startup, before co-founding Modal.
The company, which has roughly 150 employees, lets developers train AI models and run other compute-heavy workloads without managing their own servers. Its web page lists customers including the coding startup Cognition, the AI music generator Suno, the fintech company Ramp, and the publishing platform Substack. As of May, Modal had surpassed $300 million in annualized revenue, it told Reuters at the time.
The fundraising talks come two months after Modal was pulled into one of the AI industry's most closely watched security incidents. In late July, Modal disclosed that a customer's data had been compromised as part of the same hacking campaign carried out by a rogue OpenAI agent against Hugging Face. Modal CTO Akshat Bubna said the breach traced back to a flaw in a customer's own code, not to Modal's systems, stating that a customer had published an unauthenticated endpoint that allowed anyone on the internet to use their sandboxes for code execution and that the rogue agent had used it. Modal's platform was not compromised in any way, Bubna added.
More company and startup news from TechManNews.
