AI chip startups struggling to raise funds

1 min read

An interesting story in the financial press last week that suggested that Nvidia's dominance of AI computer chips is actually freezing out venture funding for would-be rivals.

New figures suggest that the number of US deals this quarter have fallen by a whopping 80% from a year ago, and this has been attributed to the growing strength of Nvidia in the Generative AI market which has resulted in it having a market valuation in excess of $1trn.

According to industry analysts investors see startups as a far riskier bet, consequently they are unwilling to provide the amounts of cash that are required to fund advanced chip design where developing a prototype can cost more than $500 million.

This pull back in investment is having a profound impact on US chip startups which raised just $881m through to the end of August. That compares to $1.79 billion for the first three quarters of 2022, while the number of deals has dropped from 23 to just four through to the end of August.

Existing start-ups are also struggling to survive at a time when Nvidia is promising huge returns on investment and when investors are looking for companies to have product within months of launch.

But while this might be the case for start-ups developing new chips, those developing AI software and related technologies have seen a boom in funding – reaching $24 billion in the year to August.

There are number of competitors with new product on the horizon, such as Intel and AMD, but Nvidia’s dominance is set to continue for the foreseeable future with all that could mean for start-ups and innovation.