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A secretive, one-year-old German artificial intelligence start-up is in talks to raise new funding at around a $4bn valuation, underscoring the fervour among investors to back promising technology in the sector.

Black Forest Labs, which focuses on using AI for image generation, is exploring raising between $200mn and $300mn, according to three people familiar with the matter.

The German start-up has previously raised undisclosed funding at around a $1bn valuation, securing backing from investors including Andreessen Horowitz.

Its new investment discussions were still at an early stage and could change, the people added.

Black Forest, which launched in August 2024, is one of the few companies in Europe developing its own AI models, alongside Paris-based Mistral.

It is led by the team that previously developed the technology for image generation at Stability AI, known as Stable Diffusion, which it has described as a “ChatGPT moment” for the machine learning technique known as diffusion.

Like Mistral, with whom Black Forest has partnered to provide image creation tools in its Le Chat app, the German start-up makes some of its AI systems available under “open source” licences, meaning they can be used and modified freely for certain applications.

Its Flux models conjure rich, realistic images from a few lines of written text. They can also generate new images based on adapting an existing picture upload, and allow the resulting creation to be edited.

Demand for image-editing AI systems has exploded in the wake of Google’s release of its “Nano Banana” model last month, which helped propel the search giant’s Gemini app to the top of the iPhone App Store charts in several markets.

Investors in Black Forest believe it has the most capable rival to Google’s visual AI systems, though the market is developing rapidly. It also competes with media creation start-ups, including US-based Runway and Midjourney, as well as OpenAI.

Adobe’s Photoshop and a new Meta AI app feature called Vibes are both incorporating Black Forest’s models. Meta’s AI chief Alexandr Wang said on X on Thursday that the social media group was still “developing our own models behind the scenes”, suggesting Black Forest’s tech may be replaced at some point.

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Black Forest’s flagship Flux models launched on Microsoft’s cloud platform Azure last month, targeting corporate customers looking to use its image-generation tools for marketing materials or prototyping. It has previously worked with Elon Musk’s xAI to integrate its tools into the company’s Grok chatbot.

Based in the small German university city of Freiburg, Black Forest is led by Robin Rombach and has fewer than 50 employees, according to LinkedIn. It is also expanding in San Francisco and London.

“We’re at the frontier of the GenAI race, competing with household names and in most instances we’re winning,” the company claims in its job ads.

Its Flux models can also create new images based on adapting an existing picture upload, and allow the resulting creation to be edited.

At the time of its launch last year, Black Forest announced it had raised $31mn led by Andreessen Horowitz, with participation from individuals including former Hollywood agent and Disney president Michael Ovitz, who is on the group’s advisory board. General Catalyst has also backed the group.

Black Forest declined to comment.