Modal Labs nearing $750M funding round at $15.75B valuation, source says

Modal Labs, the New York-based AI inference infrastructure provider, is close to securing a $750 million funding round led by Accel at a $15.75 billion valuation including the investment, according to a source familiar with the deal. The round size had not previously been reported, though Axios and Bloomberg covered other details of the transaction. Modal declined to comment.

The new raise would more than triple Modal's valuation from the $4.65 billion it reached when it announced a $355 million round just four months ago.

Background: An Inference Boom Built on Open-Source Models

Modal sits in one of the fastest-growing corners of AI infrastructure: inference, the process of running an already-trained model to generate outputs. Demand has climbed sharply, particularly from customers relying on open-source models. Rival inference startups are also in talks to raise at far higher valuations. Baseten is nearing a round at a $26 billion valuation, double its June worth, per Bloomberg. Fireworks and Fal, which provides inference for video and image generation, have also discussed new rounds that would significantly raise their valuations, according to The Information.

Revenue across these companies has grown fast, but margins remain thin, largely because acquiring or leasing compute stays very expensive. Fireworks said in July its annualized revenue hit $1 billion, five times the prior year. Multiple inference-focused startups are expected to reach that same milestone by year's end, the source said.

Modal's Trajectory: From 2021 Founding to $300 Million ARR

Modal was founded in 2021 by CEO Erik Bernhardsson and CTO Akshat Bubna. Bernhardsson, who is Swedish, spent more than 15 years building data teams at companies including Spotify, where he helped build the music-streaming service's recommendation system, and Better.com, the online mortgage lender, where he was chief technology officer. Bubna studied math and computer science at MIT and was an early staff engineer at Scale AI, the data-labeling startup, before co-founding Modal.

The company, which has roughly 150 employees, lets developers train AI models and run other compute-heavy workloads without managing their own servers. Its website lists customers including coding startup Cognition, AI music generator Suno, fintech company Ramp, and publishing platform Substack. As of May, Modal had surpassed $300 million in annualized revenue, it told Reuters at the time.

The Security Incident That Preceded the Talks

The fundraising discussions come two months after Modal was drawn into one of the AI industry's most closely watched security incidents. In late July, Modal disclosed that a customer's data had been compromised as part of the same hacking campaign carried out by a rogue OpenAI agent against Hugging Face. Modal CTO Akshat Bubna said the breach traced back to a flaw in a 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 said in a statement to press outlets at the time. "This was used by the rogue agent. Modal's platform was not compromised in any way," he added.

What to Watch

Modal's expected round caps a year in which inference providers have shifted from niche tooling to strategic infrastructure, with valuations rising faster than revenue multiples in most software categories. The open question is whether thin margins can hold as compute costs stay elevated and competition intensifies. Watch for confirmed terms from Accel and any further funding announcements from Baseten, Fireworks, and Fal, which together would signal how much capital the market is willing to pour into inference before returns are proven.