We have begun deploying our secondary fund with a focus on investments in Generative AI companies, and Cohere stock is among the first in our portfolio. Additionally, we are initiating our co-investment opportunities with this strategic investment. But why Cohere?
Founded by ex-Google researchers, Cohere stands among the top three Generative AI companies alongside OpenAI and Anthropic, with a distinct focus on enterprise applications:
Capital Efficiency: Cohere has raised less than $0.5 billion to date, significantly lower than OpenAI's $11 billion and Anthropic's $2.5 billion, due to its lack of consumer offerings like chatbots.
Production-Ready AI Models: Cohere develops AI models that are 10-15 times cheaper to run than the largest models like GPT-4, making it feasible for enterprises to scale their technology.
The high cost of developing and running top-performing AI models like GPT-4 has become a major bottleneck in the market. While consumer-facing AI products like Google’s Gemini and OpenAI’s ChatGPT are fascinating, the expense of such technologies is becoming prohibitively high. For instance, Microsoft plans to invest up to $100 billion in a data center project for OpenAI over the next several years, illustrating the massive financial demands of these oversized models.
Cohere's focus on developing world-class generative models tailored to enterprise needs has proven successful. The company began monetizing its products in 2023 and has already achieved a $22 million Annual Recurring Revenue (ARR) as of Q1 2024.
Valuation Considerations
The primary round is reportedly priced at. $5bn valuation, which is below 20x ARR for 2024 according to our estimates. In comparison, Anthropic recently closed a funding round at a $17 billion valuation, representing a 20 times ARR multiple, and OpenAI was valued at $80 billion or 15 times ARR during a tender offer earlier this year.
The recent IPO of Astera Labs, a leader in connectivity solutions for cloud and AI infrastructure, demonstrated that public investors are willing to pay high multiples for AI exposure. Astera Labs closed its first day of trading up 72% at an 80 times LTM Revenue multiple. Similarly, Nvidia, whose business is closely tied to large language models, is currently trading at a 35 times LTM Revenue multiple.
Investing in Cohere stock presents a unique opportunity to capitalize on the growing demand for enterprise-focused generative AI solutions, backed by a company with strong financial performance and significant growth potential.
