Eye On AI: Despite Need, US-Based AI Chipmakers Not Seeing Investor Love

This column is a look back at the week that was in AI. Read the previous one here.

Last week AI private market investors likely rejoiced when it was reported data center startup Astera Labs was preparing for a potential March initial public offering.

The Santa Clara, California-based startup provides data and memory connectivity solutions for some of the biggest chipmakers in the world, including Intel and Taiwan Semiconductor Manufacturing Co. It raised a $150 million Series D led by Fidelity Management and Research that values the company at nearly $3.2 billion.

Investors will keep a keen eye on the possible offering, as it will be a sneak peek of how AI startups are seen by public investors.

However, it also draws attention to the fact that the insatiable appetite for everything AI hasn’t exactly extended to the semiconductor startup world.

When Astera raised its massive round in 2022, the market for funding for U.S.-based semiconductor startups seemed to be picking up with more than $2 billion invested in nearly 80 deals for such startups, per Crunchbase data.

But that number fell to only $1.2 billion in 64 deals last year — despite big, nine-figure rounds by AI-related chip startups like Boston-based Lightmatter and Santa Clara-based Celestial AI and D-Matrix.

So far this year, the space has seen scant activity, with just a couple of deals recorded.

There are, of course, a few important things to remember. The entire venture market was down last year when compared to 2022, as it was still coming off the crazy highs seen in 2021.

Another important thing to remember is the chip market is dominated by a few big players — obviously Nvidia is in the lead in the AI-related market — and investors know that. It is an expensive and difficult market for any startups to make headway in — although company that do can see nice M&A exits.

Also, not every chip designer startup is focused on the AI market.

However, by this time last year the AI investing craze was in full swing, and although semiconductor funding normally is slow, one would think investors would have started plowing money into the industry by now. That’s especially true with how the chip market has become more segregated due to restrictions with China.

Perhaps Astera’s possible IPO will light the fire needed for semiconductor investors to open their checkbooks. Or perhaps it will show why they are so leery.

Things that caught our eye and other stuff:

One big round this week went to Ambience Healthcare — a San Francisco-based startup that has created an AI operating system for health care organizations. The platform uses AI to generate comprehensive notes, help clinicians prep for patients, compose referrals and more. While that definitely qualifies as an interesting — and useful — use of AI, it was actually who co-led that round that caught our eye. The $70 million Series B was co-led by OpenAI Startup Fund — along with Kleiner Perkins. OpenAI’s fund was announced late in 2022, and now has 14 investments, per Crunchbase. It has led or co-led in half those rounds, which have not been small. The Ambience round is significant, and late last year it took part in an $80 million round for San Francisco-based Harvey, an artificial intelligence technology service provider for legal workers. It’s an interesting fund to watch.
We’ll end with another Altman-related topic. The Information reported Jack Altman — Sam’s younger brother — has raised a $150 million venture fund to invest in early-stage startups through his Alt Capital firm. The fund plans to lead or co-lead investments and focus on enterprise software startups, including, of course, those using artificial intelligence. It is the firm’s third fund — and likely another one to watch.