According to a person familiar with the relevant financing situation, AI inference infrastructure service provider Modal Labs is about to complete a $750 million financing round led by Accel, and after the transaction is completed, the company's valuation will reach $15.75 billion. The scale of this round of financing had not been previously reported, but Axios and Bloomberg have already disclosed other details of the deal.

This new financing round will increase Modal's valuation to more than three times the $4.65 billion announced in the previous round four months ago, when the company raised $355 million.

Modal Labs declined to comment on this.

This deal comes at a time when demand for inference services is surging. Inference refers to the process of running a trained AI model to generate outputs, and customers that rely on open-source models especially have a strong demand for this. Startups in other inference sectors are also in talks to raise new funds at higher valuations. According to Bloomberg, Baseten is about to complete a round of financing with a valuation of $26 billion, double its valuation in June this year. At the same time, according to The Information, Fireworks and Fal, which focus on video and image generation inference services, have also reached out to investors to discuss a new round of financing that could significantly increase their valuations.

Although these companies have experienced rapid revenue growth, their profit margins are quite thin, mainly because the cost of acquiring or leasing computing power remains high. Fireworks announced in July this year that its annualized revenue had reached $1 billion, a fivefold increase year-over-year. According to sources, several startups focused on inference services are expected to reach the same revenue milestone by the end of this year.

Modal was founded in 2021 by CEO Eric Berndtson and CTO Akshat Bubna. Berndtson is Swedish and has over 15 years of experience building data teams at various companies, including the music streaming platform Spotify, where he helped build the recommendation system; and the online mortgage company Better.com, where he served as chief technology officer. Bubna studied mathematics and computer science at MIT and was previously an early engineer at the data labeling startup Scale AI, after which he co-founded Modal with others.

This New York-based company is estimated to have about 150 employees, allowing developers to train AI models and run other compute-intensive workloads without managing servers themselves. Its website lists clients including the programming startup Cognition, AI music generation tool Suno, fintech company Ramp, and publishing platform Substack.

As of May this year, Modal's annualized revenue had exceeded $300 million, the company told Reuters at the time.

This financing negotiation took place two months after Modal was involved in one of the most high-profile security incidents in the AI industry. In late July of this year, Modal disclosed that a customer's data had been leaked in a hacking operation targeting Hugging Face, and this operation was carried out by a runaway OpenAI agent.

Modal's Chief Technology Officer Akshat Bubna stated that the root cause of this data breach was a vulnerability in the client's own code, rather than an issue with the Modal system itself. In his statement to the media, he said: 'We learned that a Modal customer had exposed an unauthenticated endpoint, which allowed anyone on the internet to execute code in its sandbox environment. This vulnerability was exploited by that rogue agent. Modal's platform itself was not compromised at all.'

Q&A

Q1: What is the valuation of Modal Labs in this round of financing?

A: Modal Labs is close to completing a $750 million funding round led by Accel. After the deal is completed, its valuation will reach $15.75 billion, more than triple the $4.65 billion valuation from four months ago.

Q2: What security incidents have occurred with Modal Labs before?

A: In late July this year, Modal disclosed that a customer's data was leaked in a hacking incident targeting Hugging Face, with the attacker being an out-of-control OpenAI agent. Modal stated that the issue originated from a vulnerability in the customer's own code, rather than a breach of its platform system.

Q3: What kind of business does Modal Labs do?

A: Modal Labs is an AI inference infrastructure service provider that enables developers to train AI models and run other compute-intensive workloads without managing servers themselves. Its clients include companies such as Cognition, Suno, Ramp, and Substack.

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