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

Modal Labs, an AI infrastructure startup, is talking to VCs about a new round worth about $2.5 billion, according to four people with knowledge of the deal. If the deal closes on those terms, the funding round would more than double the company’s $1.1 billion valuation announced less than five months ago.

General Catalyst is in talks to lead the round, the people told TechCrunch. Modal’s annualized revenue rate (ARR) is around $50 million, our sources said. Negotiations are early and terms may change.

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

The model is focused on optimizing inference, the process of running trained AI models to generate responses to user requests. Improving the efficiency of inference reduces computational cost and shortens the delay between user prompt and AI response.

Modal is one of the few derivatives-focused companies now attracting intense investor attention. Last week, rival Baseten announced a $300 million raise at a $5 billion valuation, more than doubling the $2.1 billion valuation it hit just months before 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 that they had spun off the tool into a VC-backed startup, Inferact, raising $150 million in seed funding led by Andreessen Horowitz at an $800 million valuation. Meanwhile, TechCrunch reported that the team behind SGLang has commercialized as RadixArk, which sources told us secured seed funding in a $400 million valuation led by Accel.

Modal was co-founded by CEO Erik Bernhardsson in 2021 after spending 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 has been updated to include a comment from Modal.