AI Search Startup Perplexity Valued at $1 Billion in Funding Round

Perplexity AI, a startup using artificial intelligence to build a search engine to compete with Alphabet Inc.’s Google, has raised about $63 million in a new funding round that values the company at more than $1 billion.

The financing, set to be announced on Tuesday, doubles Perplexity’s valuation from just three months ago. Investor Daniel Gross led the round with participation from billionaire Stanley Druckenmiller, Y Combinator Chief Executive Officer Garry Tan and Figma Inc. CEO Dylan Field. Several earlier Perplexity backers, including Amazon.com Inc. founder Jeff Bezos and Nvidia Corp. also joined the round. The Wall Street Journal previously reported Perplexity was in funding talks.

Founded less than two years ago, Perplexity offers an AI chatbot that summarizes search results, lists citations for its answers and helps users refine their queries to get the best responses. With an emphasis on accuracy, Perplexity has quickly distinguished its chatbot in an increasingly crowded market and earned fans like Nvidia CEO Jensen Huang, who has said he uses the product “almost every day.” Perplexity has processed more user queries in the US so far this year — nearly 75 million — than it did in all of 2023.

Perplexity, which offers free and paid versions of its service, said it’s generating $20 million in annual recurring revenue. Like many other AI companies, Perplexity is now trying to boost revenue by focusing on selling AI services to businesses. The startup is announcing a new enterprise version of its chatbot, priced at $40 a month, with added features including stronger security and data protection measures. Bridgewater Associates,Zoom Video Communications Inc. and the Cleveland Cavaliers are among the early group of businesses using the product.

“We want to get Perplexity in the hands of every single company in the United States,” Aravind Srinivas, the company’s co-founder and CEO, said in an interview.

Perplexity is also looking to expand its user base in other regions. The startup has inked distribution partnerships with two major carriers, Japan’s SoftBank Corp. and Germany’s Deutsche Telekom AG, to market the service to a combined total of more than 300 million users worldwide. Some of those customers will be offered a free one-year subscription to Perplexity.

The 55-person startup remains far smaller and less capitalized than ChatGPT-maker OpenAI, not to mention Google. But the investor and user interest in Perplexity highlights the enthusiasm for a new crop of generative AI products to rethink basic internet services like search. Google, for its part, has been racing to overhaul its products around artificial intelligence and is said to be considering charging for AI-fueled search features, which would mark the first time it puts any part of its core service behind a paywall.

Srinivas acknowledged that his company is competing with “big sharks,” but said Perplexity’s edge is being nimble and designing its technology from the ground up to focus on accuracy. The team updates the app’s dataset frequently, collects information from users when the chatbot gets answers wrong and draws on several leading models — such as OpenAI’s GPT-4, Anthropic’s Claude, and Meta’s Llama-3 — to provide the best responses, Srinivas said.

“Acquiring truthful answers deserves its own dedicated product,” said Gross, an entrepreneur and investor who previously ran AI projects at Apple Inc. and was a partner at Y Combinator. “Features like citations, and getting high-quality information from authoritative sources — these are the kinds of things you can do if you specialize as a product company, versus trying to make something general.”