The job cuts, equivalent to roughly 5% of the company’s 400-person workforce, is the latest sign of the challenges surrounding the tech industry’s headlong rush into generative AI, with bullish indicators and warning signs seeming to flash simultaneously.

In a letter to employees on Tuesday viewed by Fortune, Cohere CEO Aidan Gomez said the layoffs were a “necessary step to ensure that we have the right people in place to remain highly competitive and at the forefront of the industry.” Gomez said that this has been a “mixed week,” with a successful funding round and an “exciting new roadmap” of new models.

He added that the company will continue to hire at a fast pace, both backfilling for positions that are open (there are about 35 listed on Cohere’s website) and adding capacity in areas identified as strategic priorities. “Overall, we anticipate that we are likely to double our overall headcount over the course of 2024–unchanged from before this decision—reflecting the growth of the business.”

Cohere, which shared a copy of the letter in response to Fortune’s request, would not comment on the severance being offered to employees affected by the layoffs and said that the roles affected varied, and were not concentrated on any specific job type.

The Toronto-based startup is among OpenAI’s top competitors, along with Google, Meta, Anthropic and Mistral, in the race to build the most capable large language models (LLMs) — a high-cost endeavor that requires access to vast amounts of pricey and power-hungry computer chips.

Investors have been piling into the AI sector. In May, ScaleAI and Coreweave each raised $1 billion. X.ai, founded by Elon Musk, raised $6 billion that same month. And Paris-based Mistral raised $640 million in June.

On Monday, Cohere announced that it had raised $500 million in its Series D funding round, led by Canadian pension fund PSP Investments, as well as backers including AMD, Cisco, and others.

Founded in 2019 by three alumni of Google Brain, Cohere has been under pressure recently to prove that its models and its go-to-market strategy can deliver world-class performance to businesses—while at the same time raising enough money to pay for the computing power it needs and generating enough revenue to satisfy investors.

As Fortune reported in April, the cost of training large LLMs is staggering and necessitates a constant stream of new funding. But in many ways, Cohere is running its own race. For one thing, it is targeting big business customers and has not developed a consumer chatbot. Cohere’s rivals include Big Tech companies with their own cloud computing arms; startups closely partnered with them; or those giving open-source models away for others to build upon. Cohere, meanwhile, has sought to maintain its financial independence from any single cloud ecosystem (though it does have a partnership with Oracle, the fourth largest cloud provider). 

Here is a copy of Gomez’s full note:

This has been a mixed week for all of us. With our successful funding round closed, and a very exciting roadmap of new models and greater impact, I’ve never been more optimistic about our future. At the same time, it is with sadness that we have taken the step part ways with some of our colleagues from the last several years.

I’m extremely grateful for the contributions of all of you, as well those who are leaving the company. While painful, this was a necessary step to ensure that we have the right people in place to remain highly competitive and at the forefront of the industry.

We will continue to hire at a fast pace, both backfilling for positions that are open, and adding capacity in new areas that we have identified as strategic priorities. Overall, we anticipate that we are likely to double our overall headcount over the course of 2024–unchanged from before this decision—reflecting the growth of the business.

Cohere is growing very quickly, and with that development comes growing pains, which is normal, if difficult at times. The good news is that we are set up for success, in terms of funding, strategic partnerships, industry-leading talent, and clear vision for the future of Cohere.

Cohere’s mission is to do whatever it takes to scale intelligence to serve humanity. To date, we have been pursuing that by building great models and serving them securely to our customers via channel partners. Going forward – while continuing our existing model-as-a-service business – we will begin to focus more and more on augmenting the workforce with AI and supporting sophisticated automation of tasks. I’m extremely excited to build that future with the team here today.

It’s been a busy year and hopefully everyone feels as optimistic as I do that we are best positioned to succeed over the next year, five years and ten years. Cohere is only just beginning and we have a tremendously bright future to go and build.

Correction: Cohere announced its $500 million funding on Monday, not on Tuesday.