AI inference startup Modal Labs is in procurement talks at a valuation of $2.5 billion, sources say

Modal Labs, a startup specializing in AI inference infrastructure, is in talks with VCs about a new round valued at about $2.5 billion, according to four people familiar with the deal. If the deal closes on these terms, the funding round would more than double the company’s announced $1.1 billion valuation less than five months ago.

General Catalyst is in talks to lead the round, people told TechCrunch. Sources say Modal’s annual revenue run rate (ARR) is approximately $50 million. Discussions are at an early stage and terms are still subject to change.

Modal Labs co-founder and CEO Erik Bernhardsson denied that the company was actively raising money and characterized recent interactions with VCs as general conversations. General Catalyst did not respond to a request for comment.

Modal focuses on optimizing inference, the process of running trained AI models to generate answers from user requests. Improving inference efficiency reduces computing costs and reduces the lag time between the user’s prompt and the AI’s response.

Modal is one of the few inference-focused companies currently attracting intense investor attention. Last week, competitor Baseten announced $300 million in funding at a $5 billion valuation, more than double the $2.1 billion valuation it reached just a few months earlier in September. Similarly, inference cloud provider Fireworks AI 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 moved the tool to VC-backed startup Inferact, which had raised $150 million in seed funding led by Andreessen Horowitz at a valuation of $800 million. Meanwhile, TechCrunch reported that the team behind SGLang has commercialized it as RadixArk, and sources say it has secured seed funding led by Accel at a $400 million valuation.

Modal was co-founded in 2021 by CEO Erik Bernhardsson, who previously served as CTO at companies such as Spotify and Better.com, after spending more than 15 years building and leading data teams.

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

Editor’s note: This story has been updated to include comments from Modal.