Cohere Lands $2B Valuation in Latest Funding Round - Report

Will it become a key LLM alternative to OpenAI?

The New York Times reported today that Cohere landed “at about $2 billion” in valuation during a $250 million funding round. CB Insights lists Cohere’s valuation at $500 million in December 2021. The company has variously been reported as having raised $165 million (Crunchbase) and $170 million (Reuters) through the end of 2022. So, this round looks like a four times valuation boost in less than 18 months.

Reuters reported in February that the new valuation might reach $6 billion, but it seems that was wishful thinking. The $2 billion mark places the company at about 7% of OpenAI’s reported $30 billion valuation. Given OpenAI’s lead in customers, a broader set of technologies, and more supported use cases, this valuation is a bet on Cohere becoming one of the leading alternative large language model (LLM) options.

According to the Times, investors in the new round include:

Internet software giant Salesforce, the chip maker Nvidia, the Toronto venture capital firm Inovia Capital and the Silicon Valley firm Index Ventures.

All Business, All Words

Reuters’ interview with Cohere CEO Aiden Gomez in February confirmed that Cohere is taking a different path from OpenAI and Stability AI, which is raising funding at a reported $4 billion valuation. While OpenAI and Stability AI offer generative text, image, and soon video AI models, Cohere plans to stick with text and its foundation LLM.

In addition, Cohere is dedicated to serving business users only, while OpenAI’s ChatGPT and Stability AI’s Stable Diffusion cross over into consumer application territory. From Reuters:

Gomez said the company differentiates itself by focusing on serving enterprise users, and Cohere has been talking to companies from marketing, consulting and tech to help them incorporate generative AI.

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"Our chat models are focused more on business applicable tasks like answering questions than writing poems. We don’t plan to hand them over to everyone to use for free without limit," said Gomez.

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Gomez said Cohere will focus on text generation models, unlike its peer OpenAI which has released GPT-3 model for text as well as DALL-E for image generation.

Stable Competition

Another company seeking the spot as the chief alternative to OpenAI’s GPT LLMs is AI21 Labs. It raised $64 million in July 2022 at a $664 million valuation. This is well behind Cohere’s recent valuation despite the fact that the company has a consumer app with a large market potential and a well-regarded LLM with mature APIs. The company released the second version of its Jurassic LLM in March.

Granted, that was nine months ago. AI21’s valuation likely has jumped substantially since then. Like Cohere, AI21 Labs is staying focused on LLMs. That may lead to a smaller total addressable market than OpenAI and Stability AI and, thus, lower valuations. However, it seems likely that beyond OpenAI, Stability AI, Nvidia, Google, and Meta, most competitors will specialize in text, images, audio, or video. And many of those will subspecialize within one of those media.

There may be some synergies in the technical development of various foundation generative AI models. Where this economy of scale breaks down is in the largest cost line item: cloud computing costs for training and running the models. That will make it hard for many startups to go beyond their specialization.

Cohere was founded by two former Google employees and a Canadian entrepreneur in 2019. The $250 million will be critical for a company that rumors suggest is spending upwards of $12 million monthly on AI model training and inference costs. Generative AI may be changing the world, but that change isn’t cheap. Look for more giant funding rounds from these companies to help pay for those “eye-watering” cloud computing bills.