Artificial intelligence startup, Magic, is set to raise over $200 million in a new funding round, valuing the company at an impressive $1.5 billion, according to sources familiar with the matter. This comes just a few months after Magic’s last capital raise and could potentially triple its valuation from its previous funding round. It’s worth noting that Magic currently generates no revenue and does not have a product for sale, but investors, including Jane Street, are still eager to participate in the funding round.
The importance of Magic’s technology lies in its development of artificial intelligence models that can write software. This has the potential to revolutionize the software development industry, as it could significantly reduce the need for human coders and increase efficiency. Software developers often represent a significant cost for tech companies, and tools that can generate code or assist developers in programming more efficiently are highly sought after. The early success of Microsoft’s GitHub, a coding platform that has seen a 40% increase in revenue due to its AI-powered coding assistant, Copilot, only adds to investors' enthusiasm for companies like Magic.
Brian Dudley, partner at Adams Street Partners, believes that the success of Microsoft’s GitHub has validated the commercial market for AI code assistants. He explains, “The opportunity is enormous, with likely multiple winners in this category.” Investors recognize the potential in this market and are eager to support startups working on AI-powered coding assistants. Notably, coding-assistant startup Augment raised $252 million in April, while Cognition secured $175 million in a funding round led by Founders Fund.
While commercially available products like GitHub Copilot and OpenAI’s ChatGPT can suggest how to complete lines of code, the next frontier for coding assistants is to design and write entire software applications without human help. Magic and other startups are working towards this goal by training their own large language models for coding-specific tasks. This endeavor, however, is cost-intensive, as it requires significant investment in data, chips, and electricity.
Magic plans to use its funding to improve its models that support long-context windows. This refers to AI systems that can process more data in one query, allowing for a better understanding of context. Magic’s innovative design sets it apart, as it goes beyond the traditional “transformer model” commonly used in large language models like OpenAI’s GPT models.
Magic isn’t the only startup pursuing this ambitious goal. Poolside AI, a Paris-based company, is also taking a similar approach and is reportedly in talks to raise $450 million at a valuation of $2 billion. This highlights the growing interest and belief in the market for AI code assistants.
As the software development industry continues to evolve, AI-powered coding assistants have the potential to reshape the way software is created. With substantial investments pouring into startups like Magic, it’s clear that investors see the value and future potential of this technology. The road ahead may be challenging, but the possibilities are vast.
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