• The funding discussions underscore the significant promise that investors perceive in generative AI coding technologies.
  • Magic AI’s upcoming tool reportedly allows software engineers to describe applications or functions using natural language.

A startup utilizing generative artificial intelligence for coding, Magic AI Inc., aims to raise USD 200 million in an upcoming funding round, potentially valuing the company at USD 1.5 billion.

The discussions continue following the recent closure of a USD 23 million Series A funding round. Sources, quoting three unnamed individuals recently, report that venture capital firm Jane Street is in negotiations to spearhead the next funding round, potentially tripling Magic AI’s valuation. Notably, the company has yet to generate revenue or release any products.

After its last funding round in February, Magic AI was valued at USD 500 million. Since its inception in 2022, the company has raised over USD 140 million, supported by investors such as Alphabet Inc.’s CapitalG, Nat Friedman and Daniel Gross’s NFDG Ventures.

The discussions about funding underscore the significant potential that investors recognize in generative AI coding technologies. Enterprises invest substantial amounts in hiring software developers, facing challenges in meeting their needs, making AI tools capable of generating code or assisting developers highly appealing.

Generative AI powers current products like GitHub Inc.’s Copilot and OpenAI’s ChatGPT, which can suggest improvements for lines of code authored by developers. While these tools assist in coding tasks, startups like Magic AI take it a step further, automating the creation of entire application codebases.

Magic AI’s confidential tool reportedly allows software engineers to describe, in natural language, the type of application or function they wish to develop. Magic AI will then generate all the necessary code to create that application. The startup’s founders describe their tool as “software that builds software,” empowering developers to use AI for discovering, evaluating, reusing, and collaborating on code changes.

In essence, Magic AI describes its tool as a “colleague inside the computer,” serving as an intelligent agent capable of handling all the tedious tasks involved in creating and editing code.

Magic AI is among numerous startups chasing the vision of AI-generated code. Inspired by the success of GitHub’s Copilot, investors have poured millions of dollars into these companies in recent months.

Recently, in April, the AI coding assistant startup Augment Inc. secured a substantial USD 227 million in a Series B funding round, boosting its valuation to USD 977 million. Similarly, in March, Cognition AI Inc., the creator of Devin, raised USD 175 million in a funding round led by Founders Fund, elevating its valuation to USD 2 billion.

There are numerous other well-funded competitors in the market, including Amazon Web Services Inc. and Google LLC, which offer CodeWhisperer and Gemini Code Assist tools, respectively, to compete with Microsoft Corp.-owned GitHub’s Copilot. Additionally, several startups like Tabnine Ltd., Codegen Inc., Refact, Laredo Labs Inc., and TabbyML Inc. are also in the mix, though they have not yet secured large-scale funding rounds.

Other companies, like the French AI coding startup Poolside AI, are also seeking to raise millions from investors.

Investors view the success of GitHub’s Copilot as evidence of the significant potential of the generative AI coding industry. In the past year, GitHub’s revenue surged by 40%, largely driven by its AI coding service, which boasts over 1.3 million paid subscribers.

A partner at the venture capital firm Adams Street Partners, Brian Dudley, said to a leading media house, “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.”

However, creating a generative AI coding assistant involves significant expenses. Startups must obtain vast datasets to train their large language models and secure substantial, energy-intensive computing resources for the training process.

Sources suggest that Magic AI plans to use the funds from its upcoming round to improve its coding assistant models. These models are reported to support long-context windows, allowing them to process more data in a single query.

The company has stated that its models’ capability to comprehend and handle longer prompts and extensive context is attributed to the innovative design of its LLMs. These models extend beyond the conventional transformer model that forms the core of platforms like OpenAI’s ChatGPT.