AI inference startup Modal Labs in talks to raise at $2.5B valuation, sources say

Modal Labs, a company focused on AI inference infrastructure, is currently in discussions with venture capital firms about raising a new funding round that would value the business at roughly $2.5 billion, according to four individuals familiar with the matter. If completed at that level, the new round would represent more than a doubling of the company’s $1.1 billion valuation announced less than five months ago, when it disclosed an $87 million Series B.

Sources say General Catalyst is in talks to lead the potential round. Modal’s annualised revenue run rate is estimated at around $50 million. The negotiations are still in early stages, and the final structure and valuation could change.

Modal Labs co-founder and CEO Erik Bernhardsson pushed back on the notion that the company is actively seeking capital, describing his recent conversations with investors as routine discussions rather than a formal fundraising process. General Catalyst did not respond to requests for comment.

The company concentrates on improving inference, the stage in which trained AI models generate outputs in response to user queries. By improving inference efficiency, companies can reduce compute costs and shorten the latency between a user’s input and the model’s response.

Modal is among a growing group of inference-centric startups drawing significant investor interest. Just last week, competitor Baseten revealed it had secured $300 million at a $5 billion valuation, more than doubling the $2.1 billion valuation it achieved in September. Similarly, Fireworks AI raised $250 million at a $4 billion valuation in October.

Momentum in the inference segment extends beyond those companies. In January, the team behind the open-source inference project vLLM announced the formation of a venture-backed startup called Inferact, which raised $150 million in seed funding led by Andreessen Horowitz at an $800 million valuation. Meanwhile, the group behind SGLang has reportedly commercialised its efforts under the name RadixArk, securing seed funding at a $400 million valuation, led by Accel.

Modal was founded in 2021 by Bernhardsson after more than 15 years spent building and managing data teams at companies including Spotify and Better.com, where he served as CTO. Early investors in Modal include Lux Capital and Redpoint Ventures.