AI inference startup Modal Labs in talks for investment worth $2.5 billion

Modal Labs, a startup specializing in AI inference infrastructure, is in discussions with VCs about a new round that could value it around $2.5 billion, according to four people familiar with the deal. If the deal closes on these terms, the funding round would more than double the $1.1 billion valuation the company announced less than five months ago when it announced an $87 million Series B round.

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 in their early stages and terms may still change.

Erik Bernhardsson, co-founder and CEO of Modal Labs, denied that his company was actively raising money and described his recent interaction with a VC as a typical conversation. General Catalyst did not respond to our request for comment.

Modal focuses on inference optimization, the process of running trained AI models to generate answers to user requests. Increasing inference efficiency reduces compute costs and reduces latency between user prompts and AI responses.

Modal is one of a handful of inference-focused companies currently receiving a lot of attention from investors. Last week, rival Baseten announced a $300 million raise to a $5 billion valuation, more than double the $2.1 billion valuation it achieved just a few months earlier in September. Likewise, inference cloud provider Fireworks AI secured $250 million in October at a $4 billion valuation.

Last January, the founder of the open-source inference project vLLM announced that it had turned the tool into Inferact, a VC-backed startup that had raised $150 million in seed funding led by Andreessen Horowitz at a $800 million valuation. Meanwhile, TechCrunch reports that the SGLang team has commercialized RadixArk, which sources say has secured $400 million worth of seed funding led by Accel.

Modal was co-founded in 2021 by CEO Erik Bernhardsson, who spent more than 15 years building and leading data teams as CTO at companies including Spotify and Better.com.

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

Editor’s note: This article has been updated to include comments from Modal.