According to recent reports from American news media, AI-based search engine Perplexity is in discussions with investors to raise between $500 million and $1 billion in new capital. This funding round could boost the company’s valuation to as high as $18 billion.
In December last year, analysts valued Perplexity at $9 billion following a $500 million investment round. This represented a tripling of its previous $3 billion valuation.
The company operates in the search engine market, competing with major players like Google and Microsoft, as well as AI chatbots such as OpenAI’s ChatGPT. Perplexity has experienced strong growth since ChatGPT’s breakthrough in late 2022.
More competition for Perplexity
Perplexity was one of the first alternatives to ChatGPT, carving out a niche by performing searches based on multiple large language models (LLMs). This approach helped the company gain an early advantage in this space. According to CNBC sources, the company has increased its annual recurring revenue to just under $100 million. However, it now faces increasing competition from both established companies and new entrants.
Anthropic recently introduced a search tool that enables users to search the internet with real-time results through their Claude chatbot. Last year, OpenAI added a similar search function to ChatGPT to compete directly with Perplexity and Google.
Google has also been making moves in this space. Last year, it launched AI Overviews (available outside Europe), a feature within Google Search that provides concise answers to search queries instead of simply displaying links.
Investment in AI startups
To counter the growing competition, Perplexity has taken several strategic steps. According to CNBC, the company has established a $50 million venture capital fund to invest in promising early-stage AI startups. While Perplexity itself contributes to the fund, the majority of the capital comes from external investors.
The company claims that the introduction of its Sonar API has positioned it well to identify promising startups. This API allows developers to integrate Perplexity’s search capabilities into their own applications, giving the company visibility into which applications generate significant traffic.
In January, the company made headlines with a notable proposal to merge with ByteDance’s TikTok platform. This merger would potentially allow TikTok to maintain operations in the US market in the event of a federal ban.
Perplexity develops its own browser
Additionally, Perplexity is developing its own browser called Comet, specifically designed for agentic search – a new search approach where AI takes more initiative. With this browser, the company aims to compete with established options like Google Chrome, Safari, Firefox, and Opera.
The company has faced criticism over allegations that it displays search results simply copied from media sources. In response, Perplexity launched a revenue-sharing model with publishers in June. Under this model, when the company generates advertising revenue through answers that cite an article, the publisher receives a percentage of those earnings.
Premium subscription for advanced search features
Earlier this month, the company announced it has surpassed 15 million active users. To capitalize on this growth, Perplexity offers a premium subscription that provides users with advanced search capabilities, such as the ability to search through personal files on computers or smartphones. The subscription also includes enhanced features for financial queries, such as stock prices and earnings data.