AI Startup Mercor Eyes $10B+ Valuation - Details

Mercor Pursues Series C Funding Amid Rapid Growth

Mercor, a company specializing in connecting leading AI developers – including OpenAI and Meta – with crucial domain expertise for AI model training and refinement, is currently engaged in discussions with potential investors regarding a Series C funding round. This information comes from two sources with direct knowledge of the negotiations, as well as a review of a marketing document obtained by TechCrunch.

Valuation Targets and Previous Funding

The company is presently aiming for a valuation of $10 billion or higher, according to one source. This represents an increase from a previously discussed target of $8 billion just a few months prior. However, the ultimate terms of any agreement remain subject to change.

Mercor’s most recent funding round, a $100 million Series B, was finalized in February. This round valued the company at $2 billion and was spearheaded by Felicis. Felicis has not yet issued a comment regarding the new funding discussions.

Investor Interest and Potential SPVs

Reports indicate that Mercor has already received multiple investment offers. Venture capital firms have proactively reached out to Mercor, presenting valuations reaching as high as $10 billion, as previously reported by The Information.

TechCrunch has also learned that at least two new investors are exploring the possibility of raising capital for this potential deal through special purpose vehicles (SPVs). However, it is understood that no SPVs have yet been officially authorized by Mercor.

Revenue Growth and Financial Performance

Founded in 2022, Mercor is projected to achieve an annualized run-rate revenue of approximately $450 million, as stated by one source. In February, the company reported to TechCrunch that its annual revenue, calculated based on the most recent monthly figures, had reached $75 million. Furthermore, Mercor CEO Brendan Foody announced on X (formerly Twitter) in March that the ARR had climbed to $100 million.

The company is positioning itself to surpass Anysphere, the creator of the AI coding assistant Cursor, in reaching the $500 million ARR milestone. Anysphere notably achieved this benchmark approximately one year after its product launch. Unlike Anysphere, which continues to operate at a loss, Mercor generated a profit of $6 million during the first half of the year, as reported by Forbes.

Core Business and Revenue Streams

Mercor generates revenue by providing companies access to specialized domain experts – including scientists, physicians, and legal professionals – to facilitate AI model training. A finder’s fee and a matching rate are charged for these services.

The company asserts that it supplies data labeling contractors to five prominent AI laboratories: Amazon, Google, Meta, Microsoft, and OpenAI, in addition to Nvidia. A significant portion of its revenue is reportedly derived from a select group of these clients, notably OpenAI.

Expansion into Reinforcement Learning

To broaden its business model, Mercor is communicating to investors its expansion into software infrastructure supporting reinforcement learning. This training methodology involves verifying or challenging a model’s decisions, allowing it to learn from feedback and improve over time. The company also plans to eventually develop an AI-powered recruiting marketplace.

Competitive Landscape

Mercor faces competition from companies such as Surge AI, which is reportedly seeking funding at a $25 billion valuation, as well as Turing and other data labeling firms like Scale AI, which are also extending their services into reinforcement learning. Concerns have also been raised that OpenAI’s recently launched hiring platform could lead to the development of an in-house human-expert-powered reinforcement learning training service.

Company Response and Clarifications

When contacted for comment, Brendan Foody stated, “We haven’t been trying to raise at all,” and added, “We turn down offers every month.” He also confirmed that the company’s ARR exceeds $450 million. He clarified that the reported revenue figure encompasses the total amount billed to customers before contractor compensation, a common accounting practice endorsed by audit firms and utilized by competitors Surge AI and Scale AI.

Founding Team and Leadership

Mercor was co-founded in 2023 by Brendan Foody (CEO), Adarsh Hiremath (CTO), and Surya Midha (COO), all of whom are Thiel Fellows and former students of Georgetown and Harvard Universities. All three co-founders remain in their early twenties. To support the company’s continued growth, Sundeep Jain, a former chief product officer at Uber with extensive experience, was recently appointed as Mercor’s first president, as reported by Forbes.

Legal Challenges

Mercor is currently involved in a legal dispute with Scale AI, which alleges misappropriation of trade secrets. Scale AI claims that a former employee who subsequently joined Mercor “stole more than 100 confidential documents concerning Scale’s customer strategies and other proprietary information,” according to a copy of the lawsuit previously reviewed by TechCrunch.

Maxwell Zeff contributed to this report.

Correction: A previous version of this article contained inaccuracies regarding the status of potential SPVs and the list of Mercor’s key customers. This information has been updated.