AI startup Hugging Face raises $4 billion in VC funds

The AI ​​model startup is reviewing competing term sheets for a Series D round that sources say could raise at least $200 million at a $4 billion valuation.

Hugging Face is launching a new round of funding that is expected to value the high-profile AI startup at $4 billion, according to multiple sources familiar with the matter forbes.

The Series D funding round is expected to raise at least $200 million, according to two sources, with Ashton Kutcher’s venture capital firm Sound Ventures currently leading an investor scrum. But co-founder and CEO Clément Delangue is on the lookout as the company received multiple offers this week, four sources added.

According to another source, Delangue was expected to pick a preferred offer as early as Friday. The situation is still uncertain, so no agreement has been reached and the figures could change. Several other sources, who asked not to be identified because they weren’t authorized to speak about the deal, said Hugging Face could try to raise more, up to $300 million, while existing investors could still try To win the round in a last-minute bid. GV, the Alphabet-backed venture company, and DFJ are set to review the round, a source added.

Hugging Face did not respond to requests for comment. GV declined to comment. Coatue, DFJ, Kutcher and Lux ​​also did not respond.

The anticipated funding is the latest exclamation point in the money rush for promising AI companies, particularly those offering large language models (LLMs) to power them. A little over a year ago, Hugging Face raised $100 million in a Series C round led by Lux Capital; Coatue and Sequoia were new investors in this round, joining A.Capital Ventures and Addition. The company had reached a $2 billion valuation this round, despite reporting less than $10 million in revenue in 2021. Operating margin has skyrocketed this year and is now around $30 million to $50 million, three sources said — one noting that it had more than tripled since the start of the year.

Named after the emoji of a smiling face with jazz hands, Brooklyn-based Hugging Face has grown rapidly by offering what Delangue calls “GitHub for machine learning.” It’s a pivotal venture in a growing movement of AI models that are open source, meaning anyone can access and modify them for free. Hugging Face makes money by charging for security and enterprise tools, in addition to a hub of hundreds of thousands of models trained by its developer community, including the popular Stable Diffusion model, which is the basis for another controversial AI unicorn, Stability AI, forms. (On Thursday, a Stability AI co-founder sued CEO Emad Mostaque, claiming he was tricked into selling his stake for next to nothing.) Per a forbes Profile in 2022, Bloomberg, Pfizer and Roche were early Hugging Face clients.

Earlier this year, Delangue warned that model providers who rely on paying huge sums to big tech’s cloud providers would act as “cloud money launderers.” But training and maintaining models — and building viable businesses around them — remains costly. In June, Inflection AI raised $1.3 billion to help address its Microsoft compute and Nvidia hardware costs, among other things; In the same month, foundation model competitor Cohere raised $270 million. Anthropic, makers of recently released ChatGPT rival Claude 2, raised $450 million in May. OpenAI completed its own $300 million stock sale in April, then a month later raised $175 million for a fund to support other startups, according to a filing. Adept became a unicorn after announcing a $350 million fundraiser in March. According to industry sources, this spring Stability AI met with a number of venture firms looking for a new venture of their own.

With a valuation of $4 billion, Hugging Face would rise to one of the highest valued companies in the category, tied with Inflection AI and just behind Anthropic, which is reportedly closer to $5 billion. OpenAI remains the giant in the fast-growing category, excluding Google, Meta and infrastructure companies like Databricks; Although the ownership and valuation structure is complex, the company’s previous financings have been priced in the range of $27 billion to $29 billion.

I speak for someone else forbes In a story about the breakthrough of generative AI tools, Delangue predicted, “I think there’s potential for several $100 billion companies.”