UPDATED 20:54 EDT / OCTOBER 24 2023


Report: Generative AI search startup Perplexity AI seeking millions in venture capital funding

The generative artificial intelligence search engine Perplexity AI is said to be on the verge of landing a massive funding round that will leave it valued at about $500 million, up from its $150 million post-investment valuation in March.

The Information says venture capital firm Institutional Venture Partners LLC will lead the investment, citing people with “direct knowledge” of the matter. Perplexity AI is building a generative AI-powered search engine that aims to compete with Google LLC and also OpenAI LP’s ChatGPT, which has previously been labeled as the biggest threat to Google’s dominance of internet search in years.

The startup is led by co-founder and Chief Executive Aravind Srinivas. It handles search very differently from Google. Instead of typing keywords and sorting through a list of links, users can pose their questions directly in a conversational way and receive concise, accurate answers backed up by a list of sources. Rather than call it a search engine, Srinivas prefers the term “answer engine,” and claims that it puts users, not advertisers, at the center of its experience.

Generative AI search bots offer a fundamentally different approach to the task of finding content on the internet. Whereas Google works by matching queries with relevant websites found and indexed by its crawlers and ranking them on their popularity and other metrics, Perplexity leverages the capabilities of an advanced large language model to understand the user’s query and its context. It then provides an answer in a conversational manner, based on the information it was exposed to during its training.

Perplexity and rivals such as Microsoft Corp.’s Bing, which offers a search experience powered by ChatGPT, have the potential to transform the way people discover, access and consume content online.

An awful lot of people believe in this potential too. The San Francisco-based startup boasts a number of AI luminaries among its previous investors, including the neural network pioneer and Turing Award winner Yann LeCun, who is now the chief scientist at Meta Platforms Inc.’s AI division, and Ashish Vaswani, one of the inventors of so-called Transformer models that inspired OpenAI’s GPT-4. Others include Jeff Dean, lead researcher at Google LLC’s AI unit, OpenAI co-founder Andrej Karpathy and early AI angel investors Nat Friedman and Elad Gil.

In an interview with Foundation Capital General Partner Joanne Chen that was published in Forbes earlier this year, Srinivas said he built Perplexity so that users can receive an “actual answer” to their queries, rather than peruse through multiple links and try to find the answer themselves. “Perplexity’s goal is to answer more complex questions that require synthesizing content from multiple pages and providing fast, accurate answers using LLMs,” he explained.

Srinivas explained that LLMs will eventually change the way people interact with their computers to find and consume information. He pointed out that they can do more than just provide concise and direct responses. They can also ask clarifying questions and act as a copilot while someone browses the internet. In time, they’ll also be able to assist people as they execute tasks.

“That’s our vision at Perplexity,” he said. “To give everyone access to infinite knowledge and productivity, and to improve their lives by enabling them to interact with the internet in more intuitive, efficient ways.”

The company still has some way to go before it fulfills that vision. At present, Perplexity is generating about $3 million in annual recurring revenue per month, a far cry from the $25 billion-plus that Google’s parent company Alphabet Inc. is currently generating. Still, the forthcoming funding round will give the startup a valuation multiple of around 150 times its ARR. It’s a steep price for a startup with very little traction, but it’s comparable to other generative AI startups that have landed multimillion-dollar investments this year.

OpenAI remains the best-funded generative AI startup, having secured a $10 billion investment from its backer Microsoft in January, but many of its rivals have closed on impressive rounds too. For instance, Anthropic PBC has already closed on two separate, $450 million and $100 million rounds this year and is reportedly seeking even more, while Databricks Inc. raised $500 million. Others, such as Cohere Inc., Writer Inc. and AI21 Labs Inc., have also raised millions.

Images: Perplexity AI

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