The day after generative AI modeling startup Cohere made headlines saying it had raised $500 million in new funding at a $5.5 billion valuation, the company is laying off about 20 employees.
The cuts, which represent about 5% of the company’s 400-person workforce, are the latest sign of the challenges the tech industry faces as it plunges into generative AI, and they seem to be both bullish and warning signs.
In a letter to employees on Tuesday seen by Fortune, Cohere CEO Aidan Gomez said the layoffs were “necessary to ensure we have the right talent to keep our company highly competitive and at the forefront of our industry.” Gomez said it had been a “week of ups and downs” following a successful funding round and an “exciting new roadmap” for the new model.
He added that the company will continue to hire at a rapid pace to fill open positions (about 35 are listed on Cohere’s website) and to add capacity in areas identified as strategic priorities. “Overall, we expect our headcount will likely double in 2024, reflecting the growth of our business, which remains unchanged from before this decision.”
Coheer, who shared a copy of the letter in response to Fortune’s request, would not comment on the severance packages being offered to employees affected by the layoffs, saying the roles affected are diverse and not concentrated in any particular job type.
The Toronto-based startup is one of OpenAI’s biggest rivals, along with Google, Meta, Anthropic and Mistral, in the race to build the most performant large-scale language model (LLM) — a costly endeavor that requires huge amounts of expensive, power-hungry computer chips.
Investors have been flocking to the AI space: ScaleAI and Coreweave raised $1 billion each in May, Elon Musk-founded X.ai raised $6 billion the same month, and Paris-based Mistral raised $640 million in June.
On Monday, Cohere announced it had raised $500 million in a Series D funding round led by Canadian pension fund PSP Investments, with backers including AMD and Cisco.
Founded in 2019 by three Google Brain alumni, Cohere has been under pressure recently to prove that its model and go-to-market strategy can deliver world-class performance to companies, while also raising enough capital to pay for the computing power it needs and generating enough revenue to satisfy investors.
As Fortune magazine reported in April, the cost of education for a large law master’s program is huge, requiring a continuous influx of new funding. But in many ways, Cohere is competing on its own terms. For one, the company targets large enterprise customers and isn’t developing a consumer chatbot. Cohere’s rivals include big tech companies with their own cloud computing divisions, startups that partner closely with them, or companies that offer an open-source model for others to build on. Cohere, on the other hand, has sought to remain financially independent from any single cloud ecosystem (though it does partner with Oracle, the fourth-largest cloud provider).
Below is a copy of Gomez’s full memo.
This has been a mixed week for all of us. With a successful funding round and a very exciting roadmap for our new model and greater impact, I am more optimistic about our future than ever. At the same time, I am sad to say goodbye to some of my colleagues of the last few years.
We are incredibly grateful for your contributions, and those of those who are leaving the company, and while this is difficult, it was a necessary step to ensure we have the right talent to stay competitive and at the forefront of our industry.
The company will continue to hire at a rapid pace, both to fill open positions and to expand capacity in new areas that we have identified as strategic priorities. Overall, we expect our headcount to double in 2024 compared to before this decision, reflecting the growth of our business.
Cohere is growing rapidly and with that development comes growing pains. It can be difficult at times, but this is normal. Fortunately, we are positioned for success with funding, strategic partnerships, industry-leading talent, and a clear vision for Cohere’s future.
Cohere’s mission is to do whatever it takes to scale intelligence for the benefit of humanity. To date, we have pursued that mission by building great models and delivering them securely to our customers through our channel partners. Going forward, we will continue our existing Models as a Service business while focusing even more on supporting workforce augmentation and advanced automation of tasks with AI. I am incredibly excited to build that future with the team here today.
It’s been a busy year, but I hope you’re as optimistic as I am that we’re in the best possible position to succeed over the next 1, 5, or 10 years. Cohere is just getting started, and we have a very bright future ahead of us as we build.
Correction: Cohere announced the $500 million funding on Monday, not Tuesday.
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