Investors have been gathering AI chips to attract AI startups.
What’s new: Venture-capital firms are stockpiling high-end graphics processing units (GPUs), according to a report by The Information. They’re using the hardware to provide processing power to their portfolio companies at reduced or no cost.
How it works: Andreessen Horowitz (A16Z), a prominent Silicon Valley venture investment firm, has amassed the largest known stock of GPUs dedicated to venture-funded startups. The firm plans to acquire more than 20,000 GPUs including top-of-the-line Nvidia H100s, which can sell for tens of thousands of dollars each — roughly enough to train a competitive large language model.
- A16Z offers access at below-market rates or in exchange for equity in startups it funds.
- Whether A16Z purchased GPUs or ia paying a third-party cloud provider for access is not clear.
- Luma AI, funded by A16Z, used the venture firm’s compute resources and, in June, released the Dream Machine video generator. Luma AI CEO and co-founder Amit Jain said the company turned down funders who offered more lucrative terms because A16Z offered GPUs.
Behind the news: High-end GPUs were in short supply early last year. The shortage has eased significantly, but getting access to enough processing power to train and run large models still isn’t easy. A16Z follows several other investors that have sought to fill the gap for startups.
- Ex-GitHub CEO Nat Friedman and Daniel Gross, who has provided capital to startups including Github, Character.ai, Perplexity.ai, and Uber, established the Andromeda Cluster, a group of supercomputers with more than 4,000 GPUs between them, including over 2,500 H100s. They offer access to startups in their portfolio at below-market rates.
- Last year, Index Ventures agreed to pay Oracle for access to H100 and A100 GPUs. In turn, it made them available to portfolio companies for free.
- Microsoft provides free access to GPUs via its Azure cloud service to startups funded by its venture fund M12 and the venture accelerator Y Combinator.
Yes, but: David Cahn, a partner at A16Z rival Sequoia Capital, argues that stockpiling GPUs is a mistake that could leave venture funds holding large quantities of expensive, rapidly depreciating, hardware. Cahn believes startups and small developers soon may have an easier time getting their hands on the processing power they need. Nvidia recently announced its new B100 and B200 GPUs, whose arrival should stanch demand for older units like the H100.
Why it matters: AI startups are hot, and venture-capital firms compete for early equity in the most promising ones. In addition to funding, they frequently offer advice, contacts, office support — and now processing power to empower a startup to realize its vision.
We’re thinking: Venture investors who use GPUs to sweeten a deal give new meaning to the phrase “bargaining chips.”