Salesforce Leads Financing of AI Startup at More Than $4 Billion Valuation
Salesforce is leading a financing round in Hugging Face, one of the most highly valued startups helping businesses use artificial intelligence, at a valuation north of $4 billion, according to two people with knowledge of the situation. The roughly $200 million funding round more than doubles the share price and private valuation of the New York–based company, one of these people said.
Salesforce is paying a high price for a piece of Hugging Face, which runs a service that helps companies store and use AI software, similar to the way GitHub lets developers store software code. The new funding valued the startup at more than 100 times its annualized revenue, a measure of how much revenue the company would generate over the next 12 months at its current rate, one of the people said.
THE TAKEAWAY
• Salesforce has scrambled to make AI moves as rival Microsoft zooms ahead
• The deal values Hugging Face at more than 100 times annualized revenue
• Hugging Face hosts popular machine learning models like Meta’s Llama 2
The deal price reflects the continued investor fervor for companies riding the current boom in AI that understands and generates conversational text, a trend sparked by OpenAI. Numerous companies, from AI model developers like Anthropic and Inflection AI to developers of AI-powered apps such as Character.AI and Runway, have raised funding at valuations of $1 billion or higher, despite generating little revenue. (See our Generative AI Database of startups.)
Hugging Face, for its part, is on pace to generate more than $30 million in revenue annually, one of the people said. Amazon Web Services, Microsoft, IBM and others pay Hugging Face for steering its users to their respective cloud computing services. Founded in 2016, Hugging Face also charges developers for an enterprise version of its repository for machine-learning models. The startup, which has more than 200 employees, says more than 10,000 companies use its free or paid repositories. It hosts at least several hundred thousand AI models, including popular open-source large-language models such as Meta Platforms’ Llama 2. Sequoia Capital, Lux Capital and Coatue Management last valued the company at around $2 billion in a financing last year.
The funding by Salesforce suggests it may view Hugging Face as a potential future acquisition. While Salesforce is best known for software used by sales professionals and for the Slack chat app, it also sells an array of services for software developers.
Salesforce in recent months has scrambled to fund AI startups and incorporate new AI features into its own software products as a key rival, Microsoft, zooms ahead. Microsoft’s GitHub unit sells an AI coding assistant; its Azure cloud unit sells AI models; and the company has launched new features in Office 365 apps that can summarize text or write papers and emails. OpenAI powers Microsoft’s AI products and features, and Salesforce also uses OpenAI software to power features that generate summaries of conversations and automate writing tasks.
It isn’t clear whether Salesforce is investing in Hugging Face through its general balance sheet or its venture arm, Salesforce Ventures. Forbes last month reported that Hugging Face was considering a round of new funding at a $4 billion valuation. Spokespeople for Salesforce and Hugging Face did not comment. (After the publication of this article, Salesforce CEO Marc Benioff said on X that Salesforce Ventures was leading the round.)
The open-source models Hugging Face hosts could appeal to businesses reluctant to expose their data to AI software providers such as OpenAI. Instead of buying access to a company’s proprietary model, those businesses could instead train a custom version of open-source models on their own data.
Salesforce has previously made investments in a number of AI startups through its venture capital arm. Salesforce Ventures’ Generative AI Fund has taken stakes in Anthropic and Cohere, which sell access to their models, as well as in You.com, an AI-powered search engine.
In June, Salesforce announced a set of AI products that lets business customers use models from Anthropic, OpenAI and other providers with Salesforce’s cloud servers. Competitors such as AWS and Google Cloud have also begun selling access to models from third parties alongside their own AI software, in addition to specialized servers for training it.