Modal Labs raises $355M at $4.65B valuation as AI coding and compute demand surge

Serverless AI infrastructure startup Modal Labs seals $355M funding round - SiliconANGLE

Serverless AI infrastructure startup Modal Labs seals $355M funding round Artificial intelligence startups are facing two massive headaches: there's too much AI-generated code to deal with, and not nearly enough compute power to run it all on. Modal Labs Inc., which has just raised $355 million in a new funding round, believes it can kill both birds with one stone. The New York City-based startup says today's round was led by Redpoint Ventures and General Catalyst, and saw participation from Accel and Menlo Ventures. It brings the company's valuation to $4.65 billion, up from just $1.1 billion when it last secured funding in September. The big jump in Modal's valuation mirrors the lightning-fast rate of AI adoption among enterprises and software companies. Developers are leaning on AI coding tools more than ever in order to increase the speed at which they can update and create new applications, and the resulting velocity has led to a sharp increase in demand for the infrastructure those new apps need to run. Modal's platform makes it simple for companies to rent access to the graphics processing units needed for running AI inference workloads, or the process of executing trained AI models. Its serverless infrastructure platform enables developers to deploy AI applications without having to worry about how to manage the underlying cloud servers. All of the management is handled by Modal itself, so developers only have to focus on their app's performance. The company also offers sandbox environments for developers to test newly generated AI code before running it in production. Modal is led by co-founders Erik Bernhardsson and Akshat Bubna, who serve as Chief Executive and Chief Technology Officer, respectively. They say that the company's revenue has grown tremendously in the time that has passed since it last secured funding. "The last six months have been driving everything," Bernhardsson told Reuters, citing the rapid enterprise adoption of AI coding tools like Anthropic PBC's Claude Code. He said the company's client base is extensive, and includes everything from biotechnology firms to hedge funds and even weather forecasting startups. Modal doesn't own the underlying servers it rents out to clients, but instead makes use of third-party providers, renting capacity in bulk. Bernhardsson said the demand for compute capacity has made it difficult to secure enough infrastructure to meet his customer's needs, and also resulted in a spike in infrastructure costs. However, the company has cast a wide net for compute partners, and now works with 13 different infrastructure firms, up from just five before. He said the company now relies on compute from a number of infrastructure providers that he'd never even heard of until a few months earlier. Bernhardsson's efforts have paid off though, for Modal has some serious momentum behind it. It's now generating around $300 million in annual revenue, up from just $60 million in September, he said. The latest funding round came via two separate tranches. The first group of investors backed the company at a valuation of $2.5 billion, only for a second tranche of investors to emerge that pushed its value up even further.

Modal Labs valued at $4.65 billion as AI coding takes off

AI startups have been whipped by two shifts this year: the surge in AI coding and the increasing scarcity of computing power. Modal Labs is confronting both. AI startup Modal raised $355 million in a new round of financing, valuing the company at $4.65 billion, CEO Erik Bernhardsson told Reuters. AI startups have been whipped by two shifts this year: the surge in AI coding and the increasing scarcity of computing power. Modal Labs is confronting both. The startup helps ⁠AI companies ⁠access the chips they need to run AI tools, called inference. It also has a sandbox product that allows developers to test their code, increasingly created through AI, before embedding it in their products. The company's new round is led by Redpoint Ventures and General Catalyst, which will have a board seat. The Series C round values the company ⁠at $4.65 billion, the company said, up from $1.1 billion in the fall. The valuation reflects Modal's surge in revenue, which has spiked in the ⁠last six months as more companies build products with AI code, Bernhardsson said on Tuesday. The company's annualized revenue is about $300 million, up from an annualized rate of $60 million in September. "Coding for the last six months has been driving everything," Bernhardsson said, adding that Modal's customers include biotech companies, hedge funds and two weather-forecasting firms. During that same time frame, however, computational resources have become more expensive and harder to find. Bernhardsson says the company cast a wider net and found compute providers that he had never ⁠heard of before. Modal works with 13 cloud companies, up from five last year. Modal raised cash in the Series C round in two tranches. The first tranche of investors invested at a $2.5 billion valuation, the company said. But more investors started knocking on Bernhardsson's door, leading to the company raising a second tranche at the $4.65 billion valuation. Investors in the second tranche include Accel and Menlo Ventures.