In the dynamic world of 2023, the AI revolution has ushered in a fresh set of challenges for startups. One of these is integrating cutting-edge AI into their products. Concurrently, firms are raking in substantial seed funding to create expansive generative models. The real MVP? Specialized AI chips, vital to operate these AIs. But there’s a hitch: these chips are becoming as rare as unicorns.
Startups are jostling to access these chips, facing long delays and waitlists from cloud providers. This burgeoning demand has caught the sharp eyes of venture capitalists (VCs). Sensing an opportunity, they’re shifting gears from merely funding startups to investing in the foundational AI infrastructure itself.
Why VCs are Diving into AI Infrastructure
A novel approach some VCs are taking involves investing in enterprises constructing the behemoth supercomputers that house and utilize these coveted chips. The endgame? Ensuring their startup portfolios get priority access to this computational power, colloquially termed ‘compute’. Another sweet deal for these VCs? Luring AI startups with the promise of quick access to these resources, making their investment offers irresistible.
Take the case of NexGen Cloud. Positioned in London, NexGen Cloud is on a mission to erect a whopping $1 billion AI supercomputer in Europe. Their ace? A partnership with NVIDIA, a leading US chipmaker. Thanks to their “elite member” status in NVIDIA’s network, NexGen Cloud placed early orders for these high-demand chips.
Chris Starkey, the brains leading NexGen Cloud, sheds light on the symbiotic relationship between VCs and his company. VCs fund the supercomputer projects, NexGen Cloud takes care of the tech, making it available via cloud services. Chris paints a vivid analogy: “It’s akin to building a luxury hotel. The VCs are the financiers; we manage it. We help lease out spaces to startups, and VCs have the privilege to do the same.”
The fruits of this partnership? VCs not only get a share from leasing the hardware but can also provide their startups with swifter compute access. This move grants VCs an unparalleled advantage, making their offers more enticing by bundling finance with compute resources.
A Paradigm Shift in Investing
NexGen Cloud pioneers this model in Europe, with its primary rivals being US-based giants like Lambda and CoreWeave. The latter recently made headlines, amassing a staggering $2.3 billion in investor funds, with notable investors like Nat Friedman, GitHub’s founder, and Daniel Gross, ex-machine learning director at Apple.
Nathan Benaich, the visionary behind Air Street Capital, reflects on these strategic investments: “These partnerships, like Friedman and Gross with CoreWeave, resonate with customers, showcasing a tailored product that aligns perfectly with their needs.”
With AI’s omnipresence, the hunger for cloud-based compute is skyrocketing across the tech domain. Chris Starkey shares a tidbit, “We collaborate with a VC firm where some of their businesses are shelling out $100 million annually on cloud services. The figures are staggering.”
The Bottom Line
The narrative is changing. No longer confined to traditional funding routes, venture capitalists are leveraging AI infrastructure as a game-changer, promising not only capital but also computational power. As AI’s dominance grows, this strategic shift in VC investments may just be the tip of the iceberg.
