AI startup Cohere aims for a $5 billion valuation in its latest fundraising round.

Cohere, an AI startup specializing in developing foundation models to rival OpenAI, is reportedly in advanced negotiations to secure $500 million in funding, aiming for a valuation of approximately $5 billion, as disclosed by a reliable source.

The Toronto-based company, founded by former Google researchers, has experienced significant growth in its annualized revenue run rate, surging from $13 million in December to $22 million this month, primarily attributed to the launch of its new model, Command-R. The startup has been positioning itself to investors by emphasizing its potential for growth through enterprise-focused AI models. Currently partnered with Oracle, Cohere plans to extend the availability of its models to other major cloud providers.

Last June, Cohere garnered a valuation of $2.2 billion when it secured $270 million in funding from investors including Inovia Capital, Nvidia, and Oracle. This sought-after new valuation marks a substantial increase and had not been previously disclosed.

Reuters reported in January that Cohere was seeking to raise approximately $500 million to $1 billion, with expectations of existing investors participating in the latest funding round.

This move underscores investors' willingness to back AI startups at high valuations despite moderate revenue figures, banking on the future adoption of AI models. These companies are racing to secure funding to support the costly development of AI models, which demand significant computing power and top-tier talent.

Cohere faces competition from industry giants like OpenAI and Anthropic, but its focus on AI applications for business sets it apart. While OpenAI anticipates $1 billion in revenue by 2024 and has received over $10 billion in investment, other AI labs like Anthropic and Mistral have also attracted backing from major tech companies.

However, the eagerness to fund loss-making AI labs has raised concerns among some venture capital investors, who question whether these foundation models will generate sufficient revenue relative to the substantial capital required for their development.

The disclosure of Cohere's revenue run rate for December was first reported by The Information on Wednesday.