AI Startup Magic Seeks $1.5 Billion Valuation in New Funding Round

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Magic, a U.S.-based startup focused on developing AI models to write software, is in discussions to raise over $200 million, aiming for a valuation of $1.5 billion, according to sources familiar with the matter. This new funding round comes just months after its previous capital raise.

Jane Street is expected to be among the investors participating in this round, which could significantly increase Magic’s valuation from $500 million, its worth after the February fundraising, as per PitchBook data. Despite having no revenue or product for sale, Magic has raised $140 million since its inception in 2022, supported by backers like Nat Friedman and Daniel Gross’ NFDG Ventures, and Alphabet’s CapitalG.

Magic declined to comment on the fundraising efforts, and Jane Street did not respond to requests for comment.

This latest funding round underscores the growing interest in generative AI technologies, particularly in tools that assist software developers. The market has seen increased investor enthusiasm, bolstered by the success of Microsoft’s GitHub Copilot. In April, AI coding-assistant startup Augment raised $252 million, while Cognition, which develops the AI-powered coding assistant Devin, secured $175 million, reaching a $2 billion valuation.

Brian Dudley, partner at Adams Street Partners, highlighted the commercial potential of AI code assistants. “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,” he said.

Magic and similar startups are pushing the boundaries by training their own large language models for coding-specific tasks, a process that is resource-intensive. Magic plans to utilize the new funds to enhance its models that support long-context windows, allowing the AI to process more data in a single query.

Poolside AI, a Paris-based startup taking a similar approach, is also in talks to raise $450 million at a $2-billion valuation, according to a TechCrunch report from June. Poolside, like Magic, currently has no commercially available products.