Sunday, July 14, 2024
HomeInternationalAI coding startup Magic seeks $1.5-billion valuation in new funding round 

AI coding startup Magic seeks $1.5-billion valuation in new funding round 

U.S.-based AI coding startup Magic, which creates AI models that write software code, is looking to raise more than $200 million in funding. This new round of funding would value Magic at $1.5 billion. This comes just a few months after Magic’s last fundraising effort, three sources told Reuters.

Some big investors, including Jane Street, are reportedly interested in joining Magic’s funding round. This could be a massive boost for the company, potentially tripling its valuation from the last fundraising. However, it’s important to note that Magic doesn’t have any products for sale yet and isn’t generating any revenue, according to sources requesting anonymity to discuss private matters. 

Magic is a young company founded in 2022 with only around 20 employees. Despite its small size, it has already impressed investors. Magic was valued at $500 million in its previous funding round in February. This new round could triple that valuation. PitchBook data shows Magic has raised $140 million so far. Some of its backers include well-known names like Nat Friedman and Daniel Gross’ NFDG Ventures, along with Alphabet’s investment arm, CapitalG.

Magic declined to comment. Jane Street did not respond to a request for comment.  

Magic’s fundraising efforts highlight the promising applications of generative AI, particularly in the software development space. Developers are expensive for tech companies, so any tool that can automate code generation or make programmers more efficient is incredibly attractive. This explains the excitement surrounding Magic’s funding round.

Investors are even more bullish on Magic due to the recent success of similar AI coding tools. In April, Augment, another startup creating coding assistants, raised a whopping $252 million. Similarly, Cognition, the company behind the AI assistant Devin, secured $175 million in a funding round, valuing them at $2 billion.

Investors point to the phenomenal success of Microsoft’s GitHub Copilot. GitHub reported a significant 40% increase in revenue, largely thanks to Copilot’s popularity. With over 1.3 million paid subscribers, Copilot is a hit. 

“The success of Microsoft has validated the commercial market for AI code assistants, leading everyone to believe there is clear market demand and a customer willingness to pay for the right product. The opportunity is enormous, with likely multiple winners in this category,” said Brian Dudley, partner at Adams Street Partners.

Existing AI assistants like Copilot or OpenAI’s ChatGPT can help developers complete lines of code, but the future is even brighter. Companies like Magic aim to develop assistants that can write entire applications without human intervention. This ambitious vision is what’s attracting significant investments in this space.

Like other ambitious startups, Magic is building its large language models specifically designed for coding tasks. However, training these AI systems requires a significant investment. The cost of data, powerful computer chips, and the electricity to run them all add up quickly.

Magic plans to use its new funding to address this challenge. The company intends to improve its models’ ability to handle long-context windows. This means building AI systems that simultaneously process more information, leading to more sophisticated code generation.

While many large language models, like OpenAI’s GPT, rely on a traditional “transformer model,” Magic has developed a system that can understand and process much more significant amounts of context at once, according to a source familiar with the company. This allows Magic’s AI to tackle more complex coding challenges.

Poolside AI, a French startup with a similar approach, is also making waves. In June, TechCrunch reported that Poolside is in talks to raise a staggering $450 million, with a valuation of $2 billion. Just like Magic, Poolside has no products available for purchase yet. This highlights the immense investor interest in this revolutionary technology, even at its early stages.

Subscribe To Newsletter


BRL Editor
BRL Editor
Business Review Live covers finance, technology, travel, lifestyle, and everything in between through exclusive interviews and analysis, market statistics, digital video, and an expanded array of content formats.