Black Semiconductor was the latest chip startup to make headlines when it raised nearly $275 million — mostly from the German government — last week for its next-generation chip technology.
It was just the latest sign of chip startups being able to raise big money as one of the most fundamental technologies catches the attention of investors around the world, largely thanks to AI.
Global semiconductor chip venture funding appears to be on track to bounce back this year after a forgettable 2023. So far this year, VC-backed chip startups have raised nearly $5.3 billion in just 175 deals, according to Crunchbase data.
Those numbers are well ahead of the pace from last year, when such startups saw less than $8.8 billion in 490 deals. In 2022, chip startups closed almost $10.9 billion in 447 deals.
More big rounds could be on the way, after it was reported last week that smartphone maker Samsung is leading a round of at least $300 million for Toronto-based AI chip startup Tenstorrent.
Chip boom in the US
American startups are playing a key role in raising funds. Domestic startups have raised about the same amount of money — about $1.2 billion — in about the same number of deals — 24 to 22 — compared to all of last year, per Crunchbase.
It is important to note that the number is greatly assisted by PsiQuantum, which focuses on semiconductor process development and integrated photonic devices and systems. The company received a $620 million funding package from the Australian Commonwealth and Queensland governments this spring to build a quantum computer at a site in Brisbane, Australia. The round is actually a mix of equity, grants and loans.
Even without that round, US startups would be ahead of last year’s pace. While many of the biggest rounds this year went to Chinese chip makers like ChangXin Memory Technologies, Unisoc and AaltoSemi, some big funding also went to US-based semiconductor startups, including:
- In March, optical interconnect startup Celestial AI raised a massive $175 million Series C round led by Thomas Tull’s US Innovative Technology Fund. Celestial’s photonic fabric platform helps separate compute and memory, making pervasive artificial intelligence processing faster and more energy efficient.
- In February, San Jose, Calif.-based Recogni, which is developing its AI inference chip for both the AI generation and automotive industries, raised a $102 million Series C co-led by Celesta Capital and GreatPoint Ventures.
- In March, Santa Clara, California-based Eliyan, a chip interconnect developer, raised a $60 million round co-led by Samsung Catalyst Fund and Tiger Global Management.
“Semi used to be a four-letter word in the Valley, but now it’s sex,” said Sriram Viswanathan, founding managing partner at San Francisco-based Celesta Capital. Along with its Recognize investment, the deep-tech firm’s portfolio includes Palo Alto, Calif.-based SambaNova Systems.
The effect of AI
Of course, what’s driving this renewed investor interest is the main driver of so much in the tech world – AI.
Artificial intelligence is the main reason chip giant Nvidia is now a $3 trillion company. And while shares of Astera Labs — which provides data connectivity and memory solutions to some of the world’s biggest chipmakers, including Intel and Taiwan Semiconductor Manufacturing — are at record highs, they’re still well above their IPO price from March. Astera’s IPO, in particular, was seen as a good deal for the semiconductor and AI industries.
Both of these companies indicate that there is significant public investor interest in the chip market – and that usually translates into VC interest in the private markets.
“While the full promise of AI commercialization has yet to be fully realized, AI (race) ‘FOMO’ is driving a lot of money up the value chain from AI applications to data infrastructure to semiconductors,” said Lorin Gu, founder . partner at New York-based Recharge Capital, an investor in wireless chipmaker Airoha Technology.
“Given that applying AI at scale often requires reorganizing or rebuilding infrastructure, there is strong cyclical demand for seeds at the moment,” Gu added.
While the space has become more competitive to invest in, it has also become more creative in terms of funding, with more hybrid deals and investors analyzing risks and capital in finer detail for the industry, Gu said.
Viswanathan added that the semi and hardware space in terms of AI has been flooded with capital recently and is somewhat “over bloated”.
Despite the influx of money and investors into the space, Viswanathan said there are opportunities at the silicon and hardware level. This includes startups looking to make AI inference — a model’s ability to use new data to make predictions and draw conclusions — more efficient.
However, it’s important to remember that chip manufacturing can be an expensive proposition and is an industry dominated by a few big players like Nvidia.
While those in the AI space may be looking for an alternative to Nvidia, it can be a tough market for any startup to break into.
However, it seems that at least for now investors are willing to take that risk.
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Illustration: Dom Guzman
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