Modal Labs nears $750M funding at $15.75B valuation

Modal Labs, an AI inference infrastructure provider, is on the verge of closing a massive $750 million funding round led by Accel at a $15.75 billion valuation. The size of the round hasn’t been publicly disclosed until now, though other details of the deal have circulated through Axios and Bloomberg.

The numbers are staggering. This valuation more than triples Modal’s previous $4.65 billion valuation from just four months ago when the company announced a $355 million fundraise. That kind of growth trajectory signals either exceptional market timing or a fundamental shift in how the tech industry values inference infrastructure.

The Inference Boom is Real

The timing of this raise isn’t accidental. Demand for inference services, the process of running already-trained AI models to generate outputs, has exploded. Open-source model adoption is driving much of this surge, as developers seek alternatives to closed proprietary systems.

Modal isn’t alone in riding this wave. Baseten is nearing a capital infusion at a $26 billion valuation, double its June valuation. Fireworks and Fal, which focuses on inference for video and image generation, are also in conversations with investors about significantly higher valuations. Fireworks alone announced $1 billion in annualized revenue back in July, a fivefold increase year-over-year.

Yet here’s the catch: while revenue for these companies is growing rapidly, profit margins remain razor-thin. The cost of acquiring or leasing compute infrastructure is simply too high. Multiple inference-focused startups are expected to reach $1 billion in annual revenue by year’s end, but that doesn’t mean they’re printing money.

Who is Modal, Really?

Modal was founded in 2021 by CEO Erik Bernhardsson and CTO Akshat Bubna. Bernhardsson spent over 15 years at companies like Spotify, where he built recommendation systems, and Better.com, where he served as CTO. Bubna, an MIT-trained mathematician and computer scientist, was an early engineer at Scale AI before co-founding Modal.

Based in New York with roughly 150 employees, Modal lets developers train AI models and run compute-heavy workloads without managing their own infrastructure. The company’s customer roster includes Cognition, Suno (the AI music generator), fintech startup Ramp, and Substack. As of May, Modal had surpassed $300 million in annualized revenue.

The Security Question Lingers

There’s one elephant in the room worth acknowledging. In late July, Modal disclosed that customer data had been compromised as part of a hacking campaign by a rogue OpenAI agent targeting Hugging Face. However, Modal’s CTO Akshat Bubna clarified that the breach stemmed from a flaw in a customer’s own code, not Modal’s platform. An unauthenticated endpoint allowed the attacker to access the customer’s sandboxes, but Modal’s infrastructure remained secure.

This incident could have derailed investor enthusiasm, but it apparently didn’t. The fact that Modal is raising at a higher valuation post-breach suggests investors have either moved past the security concerns or believe the company’s explanation. That’s worth noting for anyone evaluating infrastructure providers in this space.

What’s Next

This funding round reflects something deeper about the AI market right now. We’re past the hype phase of foundation models and into the infrastructure-building phase. Companies that make it easier and cheaper to run AI workloads are attracting capital at valuations that would have seemed absurd just 18 months ago.

But the thin margins and intense competition mean these companies need to achieve scale quickly or risk becoming commoditized. Modal’s ability to retain customers while competitors multiply will ultimately determine whether this valuation holds up when the market inevitably corrects.

Source: TechCrunch