AI infrastructure firm Modal Labs nears $750m funding at $15.75bn valuation

AI inference infrastructure company Modal Labs is reportedly nearing a $750 million funding round led by Accel at a valuation of $15.75 billion, according to a source familiar with the deal.

The proposed investment would more than triple Modal’s valuation of $4.65 billion, which the company reached after raising $355 million just four months ago.

Axios and Bloomberg had previously reported other details of the fundraising, while the size of the proposed round had not been disclosed.

The latest deal comes amid growing demand for AI inference services, which enable trained artificial intelligence models to generate responses and other outputs. Demand has particularly increased among businesses using open-source AI models.

Modal is not the only inference-focused startup attracting fresh investment. Baseten is reportedly nearing a new funding round at a $26 billion valuation, roughly double its valuation in June, Bloomberg reported.

Fireworks and Fal, which provides inference infrastructure for video and image generation, have also held discussions with investors over new funding rounds that could significantly increase their valuations, according to The Information.

Despite rapid revenue growth across the sector, inference companies continue to face pressure on margins because of the high cost of acquiring or leasing computing capacity.

Fireworks said in July that its annualised revenue had reached $1 billion, representing a fivefold increase from the previous year. A source familiar with the sector said several inference startups could reach the same revenue milestone by the end of the year.

Founded in 2021 by Chief Executive Officer Erik Bernhardsson and Chief Technology Officer Akshat Bubna, Modal provides infrastructure that allows developers to train AI models and run other compute-intensive workloads without managing their own servers.

Bernhardsson, a Swedish national, previously spent more than 15 years building data teams at companies including Spotify, where he worked on the music streaming platform’s recommendation system, and online mortgage lender Better.com, where he served as chief technology officer.

Bubna studied mathematics and computer science at the Massachusetts Institute of Technology and previously worked as an early staff engineer at Scale AI.

Based in New York, Modal has about 150 employees. Its customers include coding company Cognition, AI music platform Suno, fintech company Ramp and publishing platform Substack.

Modal said in May that it had surpassed $300 million in annualised revenue.

The latest fundraising talks come about two months after Modal was linked to a major AI security incident involving a rogue OpenAI agent.

Modal disclosed in late July that data belonging to one of its customers had been compromised during the same hacking campaign involving the OpenAI agent and Hugging Face.

However, Bubna said the incident resulted from a vulnerability in the customer’s code rather than Modal’s infrastructure.

“We’re aware a Modal customer published an unauthenticated endpoint that allowed anyone on the internet to use their sandboxes for code execution,” Bubna said at the time.

He added that the endpoint was exploited by the rogue agent and that “Modal’s platform was not compromised in any way.”