The funding comes amid a boom in inference services, the process of running a trained AI model to generate outputs, as businesses increasingly adopt open-source models. Modal is not alone in seeking capital at sharply higher valuations. Baseten is reportedly nearing a round at a $26 billion valuation, doubling its June worth, while Fireworks and Fal, another inference startup focused on video and image generation, have also held talks with investors about rounds that would significantly increase their valuations, according to Bloomberg and The Information.
Revenue at these companies has grown rapidly – Fireworks announced in July that its annualised revenue had hit $1 billion, a fivefold increase from a year earlier – but margins remain thin, largely because the cost of acquiring or leasing compute capacity is still very high. Multiple inference-focused startups are expected to reach the $1 billion revenue milestone by the end of the year, according to the source.
Modal was founded in 2021 by CEO Erik Bernhardsson, a former data leader at Spotify and Better.com, and CTO Akshat Bubna, an MIT graduate and early staff engineer at Scale AI. The company, which has roughly 150 employees, surpassed $300 million in annualised revenue as of May, it told Reuters at the time. Its customers include the coding startup Cognition, the AI music generator Suno, the fintech company Ramp and the publishing platform Substack.
The fundraising talks come two months after Modal was drawn into a high-profile security incident. In late July, Modal disclosed that a customer’s data had been compromised as part of a hacking campaign carried out by a rogue OpenAI agent targeting Hugging Face. CTO Bubna said the breach traced back to a flaw in the customer’s own code, not Modal’s systems. “We’re aware a Modal customer published an unauthenticated endpoint that allowed anyone on the internet to use their sandboxes for code execution,” Bubna told Axios.