Why Cohere’s $5.5 Billion Valuation Isn’t What It Seems; Perplexity’s Data Sources Draw Questions
On Monday, Cohere, a Canadian large language model developer, announced it had raised $500 million in a deal led by Canadian pension fund PSP Investments at a $5.5 billion valuation, confirming our report from March.
That valuation isn’t cheap. Around the time of the investment, the startup was generating $35 million in annualized revenue, according to a person briefed on the financials. (Annualized revenue typically reflects last month’s revenue multiplied by 12, implying it was generating about $2.9 million per month as of March.)
That means the pension fund valued Cohere at more than 140 times its forward revenue—that's a lot even by AI standards. For instance, OpenAI and Anthropic—both of which generate many times more revenue than Cohere—were last valued at 54 and 75 times their forward revenue, respectively. (Check out this past newsletter for more on how investors have been valuing AI startups.)
Are the Canadian investors off base? It’s not that straightforward.
PSP Investments has backed a handful of established companies, such as security firm Netskope and ride-sharing app Lyft. But, it’s not exactly known for its early-stage startup investing.
However, the investment looks more reasonable when you take into account the intangible benefits PSP Investments—and Canada more broadly—gets from this deal.
By investing in a homegrown model developer, Canada is ensuring that it can forge its own path in AI development, separate from U.S.-centric AI startups and regulatory environments in the States and the EU that might disadvantage foreign AI companies.
We could see signs of that months ago, when the Canadian government announced in April $2 billion-plus in subsidies (including computing power), to benefit local AI startups, including Cohere, according to a person with direct knowledge of the subsidy allocations.
So at a minimum, PSP Investments is lifting up a local company that perhaps will help Canada have a voice in the AI race. In the worst case scenario, if Cohere doesn’t work out, whatever the fund loses would be a minuscule percentage of the $265 billion in assets it manages. Seems like a risk worth taking!
Perhaps the people with the most to lose are new and future employees (who will receive stock tied to this valuation) and Cohere’s newest investors that don’t have ties to the Canadian government, such as Strategxy Ventures or IronArc Ventures. These parties are hoping to cash out through some kind of sale or IPO in the future. To make money on their shares, they’ll need Cohere’s already-steep valuation to double or triple so they can make a reasonable return for their own investors.
Getting to that goal may test their patience.
Here’s what else is going on…
Perplexity Perplexes Media Outlets
Yesterday, Sahil and I broke the news that Condé Nast, owner of The New Yorker, Vogue and Wired, has sent a cease-and-desist letter to AI-powered search engine Perplexity, demanding that it stop using content from Condé Nast publications in its search results. It follows a similar letter from Forbes accusing the startup of infringing its copyright.
However, the questions about Perplexity’s data sources go beyond media outlets and publications. As we earlier reported, others have criticized Perplexity for claiming to take on Google while using its ranking signals to order its own search results.
It calls into question how much AI startups are depending on copyrighted data and technology developed by their suppliers and rivals—and, what that means for their long-term survival.