Nvidia's dominance in AI chips deters funding for startups
Nvidia's supremacy in building computer chips for artificial intelligence has chilled venture funding for would-be rivals, investors said, with the number of U.S. deals this quarter falling 80% from a year ago.
The Santa Clara, California company dominates the market for chips that work with massive amounts of language data. Generative AI models get incrementally smarter through exposure to more data, a process called training.
As Nvidia has grown stronger in this area, the harder it has become for companies attempting to build competing chips. Seeing these startups as a riskier bet, venture financiers are newly unwilling to provide big cash infusions. Advancing a chip design to a working prototype can cost more than $500 million, so the pullback has quickly threatened the startups' prospects.
"Nvidia's continued dominance has put a really fine point on how hard it is to break into this market," said Greg Reichow, a partner at Eclipse Ventures. "This has resulted in a pullback in investment into these companies, or at least into many of them."
U.S. chip startups have raised $881.4 million through the end of August, according to PitchBook data. That compares to $1.79 billion for the first three quarters of 2022. The number of deals has dropped from 23 to four through the end of August.
AI chip startup Mythic, which has raised about $160 million in total, ran out of cash last year and was nearly forced to halt operations, technology website The Register reported. But it managed to bring in a relatively modest $13 million investment several months later in March.
Nvidia has "indirectly" contributed to overall AI chip fundraising woes, because investors want "Home run only type investments with a huge investment, huge return,"
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