Not every AI company is hot right now.
While European and US tech investors are throwing funding at startups that look like the next Nvidia or ChatGPT, they’re less optimistic about one big player: British AI chip company Graphcore.
A few years ago, Graphcore was one of the hottest startups in Europe. The startup styled itself as the go-to provider of chips created specifically with AI applications in mind, duly netting itself a valuation of almost $3 billion.
But five VCs and other industry sources speaking to Insider now think the company either will put itself up for sale or raise fresh funds in a deal that bears the hallmarks of a sale – and not at anything close to its peak valuation.
The reason: Graphcore posted rough financial results for 2022, needs more money to stay afloat, and two major investors in the startup have substantially written down the value of their stakes, hurting its chances of future investment.
The UK tech industry is small, and Insider granted anonymity to these people to avoid jeopardizing their professional relationships. It’s possible the chatter won’t translate into a sale or funding for Graphcore.
Graphcore declined to comment when approached by Insider. UK chip designer Arm and tech investor Softbank, named as possible acquisition contenders, also declined to comment.
“Graphcore is definitely in a sale process,” one venture capitalist said, adding that the company “failed to achieve its goals.”
“Sequoia zeroed them rather publicly, and that screwed them and made it impossible to raise another round, hence the sale,” a second added.
Sequoia Capital wrote down its stake in the company last year. Another backer, Baillie Gifford, cut the valuation of its investment from $11.9 million in July 2022 to just $2.8 million in July 2023.
A second founder familiar with Graphcore added on the prospect of a sale: “If so, that’s a relief for the staff but I’m assuming it’s not a great price and therefore not so good for early investors down the liquidity preference stack.”
Two investors said Graphcore would struggle to raise money by going public.
One founder operating in the same space as the AI chip firm speculated that Arm could be a leading contender to acquire Graphcore.
“They would have fewer regulatory hurdles, and the non-existent sales would not be an issue as their business model is primarily IP licensing,” they said. “Plus they [Arm] are in a post-IPO honeymoon, and their story around GPUs is weak.”
Another sign: Chief executive Nigel Toon’s ongoing publicity blitz.
In September, Toon pitched Graphcore in an interview with Insider as a viable rival to Nvidia, which holds around 70% of the AI chip market, per Omdia analysis.
“We’re at that point where the technology’s working, the technology’s maturing, and we’ll be able to start broadening the customers quite rapidly through next year,” Toon said.
Earlier this month, Toon spoke at a Bloomberg conference to warn about European tech falling behind American rivals. In March, he also wrote to UK Prime Minister Rishi Sunak to warn against China. It’s difficult not to read the publicity tour as a pitch for investors or buyers.
The firm has recorded waning buyer demand for secondary shares.
According to secondary share marketplace Hiive, buyers are “looking to purchase shares at deep discounts of 80% and more.”
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