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Business News/ Ai / Artificial Intelligence/  AI Search Startup Perplexity Set to Double Valuation to $1 Billion
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AI Search Startup Perplexity Set to Double Valuation to $1 Billion

wsj

The funding round comes just a few months after the company’s most recent financing and reflects the race among investors to capitalize on AI.

Johnny Ho, Aravind Srinivas and Denis Yarats, co-founders of the startup Perplexity, in San Francisco. PHOTO: CAROLYN FONG FOR THE WALL STREET JOURNAL Premium
Johnny Ho, Aravind Srinivas and Denis Yarats, co-founders of the startup Perplexity, in San Francisco. PHOTO: CAROLYN FONG FOR THE WALL STREET JOURNAL

Perplexity, an artificial-intelligence startup aiming to challenge Google’s dominance in web search, is finalizing a new funding deal at around a $1 billion valuation, people familiar with the matter said, roughly doubling its valuation since its most recent financing a few months ago.

The funding frenzy for the one-year-old startup is a remarkable example of the enthusiasm among some venture capitalists who think AI technology could challenge Google’s yearslong grip over search and breathe new life into startups after a bruising couple of years.

Perplexity, co-founded by Chief Executive Aravind Srinivas, uses advanced AI models to provide direct answers to search queries, as opposed to a list of website links, something Google is also working on.

Past efforts to dislodge Google in search haven’t gone so well. Microsoft has struggled to make a dent in Google’s search dominance after releasing a new version of its Bing search engine powered by large language models. The search startup Neeva, which operated a product similar to Perplexity, shut down this past year after failing to gain enough traction.

Even so, Perplexity is growing fast. The company recently surpassed $10 million in annual revenue, a person familiar with the matter said. Visits to its mobile and desktop app grew 8.6% in February to around 50 million users, according to preliminary estimates from the data service Similarweb.

While Google controls 90% of the search market, its efforts to expand into generative AI have stumbled as of late, emboldening competitors. In February, the company’s Gemini chatbot angered users by producing ahistoric images and blocking requests for depictions of white people. The controversy led Chief Executive Sundar Pichai to tell staff that the company was making structural changes in response.

The current Perplexity financing is being led by Daniel Gross, a former partner at the venture firm Y Combinator who now runs his own investment fund, the people familiar with the deal said. Gross was an early adviser to Srinivas when he launched Perplexity.

It comes just two months after Perplexity said it had raised $74 million in a deal valuing the startup at $520 million. That round, which was the largest sum raised by an internet-search startup in recent years, drew backing from Amazon.com former CEO Jeff Bezos and the venture firm Institutional Venture Partners.

The back-to-back funding rounds for Perplexity hark back to the startup boom of a few years ago, when ultralow interest rates fueled a fast-and-loose spending strategy among venture firms. The startup sector has cooled significantly since then.

Venture capitalists have turned their attention to AI, specifically the large language models powering chatbots like ChatGPT. These investors are betting that the technology could enable startups to challenge incumbents in areas ranging from healthcare to online gaming. Funding for the generative AI sector increased nearly fivefold last year.

Google has also developed its own AI-powered search tool, which is distinct from Gemini, that distills web results into summaries and allows users to ask follow-up questions, but it hasn’t yet rolled it out widely.

Perplexity’s search tool answers user queries with a detailed summary and links to where it pulled the information. Users are then able to ask follow-up questions. The company has seen an uptick in subscribers of its premium service, which charges $20 a month for a more powerful version of the search engine that uses GPT-4, OpenAI’s most advanced AI model.

Write to Berber Jin at berber.jin@wsj.com and Miles Kruppa at miles.kruppa@wsj.com

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