Magic, a U.S.-based startup specializing in artificial intelligence models for software development, is in negotiations to secure over $200 million in a new funding round, potentially valuing the company at $1.5 billion, according to sources.
The startup, which has approximately 20 employees, was previously valued at $500 million following a fundraising round in February. Since its inception in 2022, Magic has raised $140 million from investors including Nat Friedman and Daniel Gross’ NFDG Ventures and Alphabet’s CapitalG.
Magic, which currently has no revenue or market-ready product, has declined to comment on the new funding round. Jane Street, expected to be one of the investors, did not respond to a request for comment.
This funding round is part of a broader trend in the burgeoning field of generative AI technologies, particularly those aimed at assisting software developers. The high costs associated with software development make tools that can generate or assist in writing code highly appealing to tech companies.
The success of Microsoft’s GitHub Copilot, which has 1.3 million paid subscribers and reported a 40% year-over-year revenue increase, has spurred investor interest. Other AI coding startups have also attracted significant funding: Augment raised $252 million in April, and Cognition secured $175 million at a $2 billion valuation.
“The commercial market for AI code assistants has been validated by the success of Microsoft, leading to strong market demand and customer willingness to pay for effective products,” said Brian Dudley, partner at Adams Street Partners. “The opportunity in this sector is enormous, with potential for multiple successful players.”
Magic and similar startups aim to push the boundaries by developing AI systems capable of designing and writing entire software applications autonomously. This ambitious goal requires substantial investment in data acquisition, computational hardware, and energy.
Magic intends to use the new funds to enhance its AI models, specifically those with long-context windows that can process more data in a single query. This innovation goes beyond traditional transformer models used in large language models like OpenAI’s GPT.
In a related development, Paris-based startup Poolside AI, which follows a similar approach to Magic, is in discussions to raise $450 million at a $2 billion valuation, despite also lacking commercially-available products, according to a June report by TechCrunch.
