Black Semiconductor is the latest chip startup that has made headlines. It raised nearly $275,000,000 — mainly from German government — for its next-gen chips last week.

AI was the main reason why chip startups were able to raise so much money.

Global venture funding for semiconductor chips is on track to rebound this year, after a forgettable year in 2023. Crunchbase data shows that VC-backed startups have raised $5.3 billion this year in only 175 deals.

These numbers are far ahead of last year’s pace, when these startups closed 490 deals totaling less than $8.8 Billion. In 2022, chip companies will have closed 447 deals worth almost $10.9 billion.

reported that last week, Toronto-based AI chip startup tenstorrent was leading a $300 million round led by smartphone maker Samsung.

US Chip Boom

U.S. startups have played a major role in the recent funding boom. Crunchbase reports that domestic startups raised nearly the same amount — $1.2 billion — through almost the same number (24 to 22) of deals as they did last year.

It is important to note PsiQuantum is a major contributor to this number. This company focuses on integrated photonic systems and semiconductor process development. The company received a $620 million financial package from the Australian Commonwealth government and Queensland this spring for building a quantum computing system in Brisbane, Australia. The round is a combination of equity, grants, and loans.

Even without the round, U.S. startup companies would have been ahead of last year. Many of the largest rounds in this year’s financing went to Chinese chipmakers, such as ChangXin Memory Technologies Unisoc, and AaltoSemi. However, some large financings went to U.S. semiconductor startups, including

• In March, the optical interconnectivity startup Celestial AI received a massive 175 million Series C from Thomas Tull and US Innovative Technology Fund. Celestial’s platform for photonic fabrics separates compute from memory, allowing it to process AI more efficiently and faster.
• In February, Recogni of San Jose, California, which is developing an AI inference chip both for the generative AI industry and automotive industry, raised a $100 million Series C led by Celesta Capital.
• In March, Eliyan of Santa Clara, California, a chiplet developer, raised $60 million in a round led by Samsung Catalyst Fund, and Tiger Global Management.

“Semi was a four-letter term in the Valley. Now it’s sexy,” declared Sriram Viwanathan founding managing partner of San Francisco-based Celesta Capital. Along with Recogni, the deep-tech company’s portfolio also includes SambaNova Systems, based in Palo Alto.

AI effect

AI is the driving force behind so many of the things that are happening in the tech industry.

Artificial intelligence is driving the growth of chip giant . Nvidia has now reached a $3 trillion company. While shares of Astera Laboratories, which provides data and connectivity solutions to some of the largest chipmakers in the industry, including Intel, and Taiwan Semiconductor Manufacturing, are down from their highs, the price is still above the IPO price of March. Astera’s IPO was viewed as a bellwether for both the semiconductor industry and the AI industry.

Both companies show that there is a significant public interest in the chip markets — and this usually translates into VC interest on the private market.

“While the full potential of AI commercialization is not fully demonstrated, the ‘FOMO,’ of the AI race, is pushing a great deal of hot money to the value chain, from AI applications to data-infrastructure to semiconductors,” said Lorin Gui, founding partner of New York-based Recharge capital and an investor in wireless device chip manufacturer Airoha Technology.

“Given the fact that at-scale AI applications often require retooling or a new build of infrastructure there is a strong demand for semis right now,” Gu added.

Gu said that while the space is more competitive, it has also become more creative when it comes to financing. There are more hybrid deals, and investors analyze the risks and capex of the industry in greater detail.

Viswanathan said that the semi-hardware space in relation to AI has received a lot of capital and is “over-inflated.”

Viswanathan says that despite the influx of investors and money in the industry, there are still opportunities at the hardware and silicon level. This includes startups that are looking to improve AI inference – a model’s capability to use new data and make predictions or draw conclusions – to be more efficient.

It is important to keep in mind that chipmaking is an expensive endeavor and is dominated by big players such as Nvidia.

While those in AI may be looking for alternatives to Nvidia it can be difficult for startups to gain traction.

Investors are still willing to take this risk, at least for the moment.

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Illustration: Dom Guzman