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

Modal Labs, a startup specializing in AI inference infrastructure, is talking to VCs about a new round at a valuation of about $2.5 billion, according to four people with knowledge of the deal. Should the deal close at these terms, the funding round would more than double the company’s valuation of $1.1 billion 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 News. Modal’s annualized revenue run rate (ARR) is approximately $50 million, our sources said. The discussions are early, and terms could still change.  

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

Modal is focused on optimizing inference, the process of running trained AI models to generate answers from user requests. Improving inference efficiency reduces compute costs and cuts down the lag time between a user’s prompt and the AI’s response.

Modal is one of the handful of inference-focused companies attracting intense investor attention now. Last week, its competitor Baseten announced a $300 million raise at a $5 billion valuation, more than doubling the $2.1 billion valuation it reached just months prior in September. Similarly, Fireworks AI, an inference cloud provider, secured $250 million at a $4 billion valuation in October.

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

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

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

Editor’s Note: This story was updated to include a comment from Modal.