AI Inference Startup Modal Labs in Talks to Raise at $2.5B Valuation

Modal Labs, an AI inference infrastructure startup, is reportedly in discussions with venture capital firms to raise a new funding round at a $2.5 billion valuation, according to sources familiar with the matter.

If finalized at these terms, the deal would more than double Modal’s previous $1.1 billion valuation, which was announced less than five months ago following its $87 million Series B round.

General Catalyst in Talks to Lead Funding Round

Sources say General Catalyst is in conversations to lead the potential round. Modal Labs is said to be generating approximately $50 million in annualized revenue run rate (ARR).

However, discussions remain in early stages and terms could still change.

Modal co-founder and CEO Erik Bernhardsson denied that the company is actively fundraising, describing recent discussions with investors as general conversations. General Catalyst declined to comment.

Why AI Inference Startups Are Heating Up

Modal Labs specializes in AI inference optimization—the process of running trained AI models to generate responses to user prompts. Inference efficiency is critical because it:

• Reduces compute costs

• Minimizes latency between prompts and responses

• Improves overall AI system performance

As generative AI adoption grows, demand for scalable and cost-efficient inference infrastructure has surged, making this sector one of the hottest areas in venture capital.

The Inference Infrastructure Funding Boom

Modal is part of a broader wave of inference-focused startups attracting massive funding rounds:

• Baseten recently raised $300 million at a $5 billion valuation.

• Fireworks AI secured $250 million at a $4 billion valuation.

• Inferact (built around the vLLM project) raised $150 million at an $800 million valuation, led by Andreessen Horowitz.

• RadixArk, commercializing SGLang, reportedly raised seed funding at a $400 million valuation led by Accel.

The rapid valuation growth across the inference ecosystem highlights investor confidence in infrastructure powering large language models and AI applications.

Modal Labs: Background and Investors

Founded in 2021 by Erik Bernhardsson formerly a data leader at Spotify and CTO at Better.com Modal Labs focuses on building tools that simplify and scale AI workloads.

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

The Bigger Picture

With AI usage accelerating globally, the need for efficient inference infrastructure is becoming critical to profitability. Companies that can lower compute costs while maintaining performance are well-positioned to capture enterprise demand.

If Modal Labs successfully closes its new funding round at a $2.5 billion valuation, it would further cement inference infrastructure as one of the most competitive and capital-intensive segments in the AI industry.

As the AI arms race intensifies, investors appear eager to back the foundational technologies powering next-generation applications.