AI Training Startup Mercor Aims to Double Valuation to $20 Bn on Surging AI Revenue

Artificial Intelligence (AI) training startup Mercor is in early discussions to raise fresh capital at a valuation of around $20 billion, potentially doubling its valuation from less than a year ago.

Mercor has informed prospective investors that it has already received at least one term sheet reflecting the proposed valuation, Bloomberg reported citing people familiar with the matter.

However, the discussions remain preliminary and there is no certainty that the fundraising will be completed or that the final terms will remain unchanged.

The latest funding talks follow Mercor's previous capital raise, completed less than a year ago, when the company was valued at $10 billion.

Revenue Growth Offsets Recent Challenges

The fundraising effort comes after a difficult period for the San Francisco-based company. Mercor suffered a security breach in late March that exposed customers and contractors to potential risks. Following the incident, Meta Platforms suspended its work with the startup indefinitely.

Mercor, however, said that the impacts to customer and contractor data were "very limited," according to findings from an internal investigation cited by Bloomberg. The report added that OpenAI and Anthropic continue to remain customers.

Despite the setback, Mercor's business has continued to expand rapidly. In a post on X (formerly Twitter) this week, Chief Executive Officer Brendan Foody said the company had reached a $2 billion annualised revenue run rate, doubling from $1 billion just four months earlier.

Part of this growth has been reportedly driven by enterprise customers and application-layer companies developing their own AI models, with Mercor supplying specialised datasets to accelerate model training.

The revenue figure does not represent the company's retained income, as contractors reportedly receive 60-70% of the total billed amount, as per BBG.

Competing In A Fast-Growing AI Market

Founded in 2023, Mercor has rapidly established itself as a key provider of specialised data for AI model development.

The company competes with AI data-labeling firms including Surge AI and Scale AI, the latter having been valued at more than $29 billion last year following an investment from Meta.

Mercor has remained profitable since its launch. The company also pays more than $4 million per day to contractors and employs around 400 full-time staff, as per the report.