Cohere Closes $450M Funding Round and Doubles Valuation as LLM Wars Intensify

The niche LLM strategy shows early signs of traction

Reuters reported today that Cohere has closed a $450 million funding round that included investments from NVIDIA, Salesforce, and Cisco. According to Reuters sources, the funding supports a new valuation of $5 billion, more than double its $2.2 billion valuation in June 2023.

The leaked news was not confirmed by Cohere or its leading investors at the time of publication. However, the source indicated that the company hit an annualized revenue run rate of $35 million in March (about $3 million per month), nearly three times as much as the $13 million run rate (just over $1 million per month) at this time last year.

LLM Wars

Founded in 2019, Cohere is among the earliest developers of commercial large language models (LLM). It has been overshadowed by OpenAI, Anthropic, and Google in the proprietary LLM segment. However, while rivals have focused on building general purpose AI foundation models, Cohere has sought differentiation in deploying models customized to specific use cases are technology architectures. For example:

• Command R focuses on retrieving augmented generation (RAG) “at scale.” This improves response accuracy by grounding answer retrieval in known datasets.

• Embed is designed to improve LLM response accuracy by .

• Rerank is a founcaiton model designed to enhance semantic search and deliver cost and latency optimization for RAG architectures.

It is a reasonable strategy to focus on niche solutions when your primary competitors in the general-purpose model segment are tech giants and funded startups with valuations four to twenty times higher. By definition, niche segments represent smaller addressable markets than general-purpose solutions. However, niches are also attractive as they make it easier to align solutions around specific value propositions.

What’s Next

The fact that Cohere is on pace to generate $36 million over the next twelve months shows significant progress. Another tripling of revenue over the next year, will indicate strong momentum. This is well behind OpenAI’s multi-billion dollar revenue engine, but Cohere is competing in the solution optimization market. Cohere’s key risks are:

1. General purpose frontier and open-sourse models continue to improve in response quality, latency, and cost.

2. Adoption of advanced generative AI solutions are delayed.

The first point would result in Cohere’s solution optimizations becoming less differentiated. The second reflects the fact that Cohere is focused on system optimization when much of the enterprise market is oriented around deploying solutions that work and many are not thinking yet about optimization.

Another issue Cohere could face is the rise of the data-centric RAG optimization solutions. Databricks and Snowflake now have LLMs combined with their data products. While their data products are general-purpose, their entry into generative AI is focused on a mix of convenience, performance, and optimization for RAG-related solutions.

Still, the valuation and revenue progress are promising. Generative AI represents a very large and rapidly growing market. There is room for many winners and some of the niches will be sizeable in their own right.

The funding round also shows that investor enthusiasm in generative AI foundation models remains strong.

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