AI inference startup Modal Labs is in talks to raise valuation to $2.5 billion, sources say

Modal Labsa startup that specializes in artificial intelligence inference infrastructure is talking to VCs about a new round at a valuation of about $2.5 billion, according to four people familiar with the deal. If the deal closes on those terms, the funding round will more than double the company’s valuation 1.1 billion dollars announced less than five months ago.

General Catalyst is in talks to lead the round, the people told TechCrunch. Modal’s annual revenue run rate (ARR) is around $50 million, our sources said. Discussions are early and terms could still change.

Modal Labs co-founder and CEO Erik Bernhardsson denied that his company is actively raising money and characterized his recent interactions with VCs as general discussions. General Catalyst did not respond to our requests for comment.

The model focuses on inference optimization, the process of running trained AI models to generate responses from user requests. Improving inference efficiency reduces computational cost and reduces the lag time between a user’s prompt and the AI’s response.

Modal is one of the few bottom line companies that is attracting intense investor attention right now. Last week, Baseten’s competitor announced a $300 million increase at a $5 billion valuation, more than doubling the $2.1 billion valuation it reached just months earlier in September. Similarly, Fireworks AI, an inference cloud provider, raised $250 million at a $4 billion valuation in October.

In January, the creators of the open source inference project vLLM announced that they had spun off the tool into a VC-backed startup, Inferact, raising $150 million in seed funding led by Andreessen Horowitz at a $800 million valuation. Meanwhile, TechCrunch reported that the team behind SGLang has been commercialized as RadixArk, which sources told us has secured seed funding at a valuation of $400 million led by Accel.

Modal was co-founded by CEO Erik Bernhardsson in 2021 after spending more than 15 years building and leading data teams at companies like Spotify and Better.com, where he was CTO.

The startup counts Lux Capital and Redpoint Ventures among its previous backers.

Editor’s note: This story has been updated to include a comment from Modal.