AI inference infrastructure provider Modal Labs is nearing a $750 million funding round led by Accel. The financing values the company at $15.75 billion, which includes the investment itself. A source with knowledge of the funding shared these details, though Axios and Bloomberg have reported other aspects of the deal. The specific size of the round was not previously reported.
This new round more than triples Modal's valuation from the $4.65 billion it reached four months ago when it announced a $355 million previous fundraise. Founded in 2021 by CEO Erik Bernhardsson and CTO Akshat Bubna, the New York-based company employs roughly 150 people. Bernhardsson spent more than 15 years building data teams at companies like Spotify and Better.com. Bubna studied math and computer science at MIT and worked as an early staff engineer at Scale AI.
Inference demand fuels huge startup valuations
Modal lets developers train artificial intelligence models and run compute-heavy workloads without managing their own servers. The company's web page lists customers including coding startup Cognition, AI music generator Suno, fintech company Ramp, and publishing platform Substack. In May, Modal told Reuters that it had surpassed $300 million in annualized revenue. Other inference startups are also in talks to raise capital at much higher valuations according to recent reports.
Baseten is nearing an infusion of capital at a $26 billion valuation, which doubles its worth from June according to Bloomberg. Fireworks and Fal have also held talks with investors about new rounds that would significantly increase their valuations according to The Information. Fireworks announced in annualized revenue of $1 billion in July, representing a fivefold increase from the prior year. Multiple inference-focused startups are expected to reach the same revenue milestone by the end of the year according to the source.
High compute costs squeeze thin operating margins
Despite rapid revenue growth, companies in this sector face thin margins largely because acquiring or leasing compute remains very expensive. These fundraising talks arrived two months after Modal was pulled into a high-profile security incident. Modal disclosed in late July that a customer data compromise occurred during the same hacking campaign carried out by a rogue OpenAI agent against Hugging Face.
Bubna stated at the time that the breach traced back to a flaw in a customer code rather than Modal systems. He explained that a customer published an unauthenticated endpoint allowing public access to sandboxes for code execution, which the rogue agent used. Bubna emphasized that Modal platform security remained completely uncompromised.
