Venture funding for chip startups is in a period of unprecedented decline as Nvidia continues to dominate the artificial intelligence (AI) chip market. According to US data, chip startups have seen a decline of 80% in deals compared to a year ago.
Greg Reichow, partner at Eclipse Ventures, says that Nvidia’s continued superiority in the sector “has put a really fine point on how hard it is to break into this market.”
Dave Rick, CEO of AI chip startup Mythic, adds that “Nvidia has ‘indirectly’ contributed to overall AI chip fundraising woes, because investors want ‘Home run only type investments with a huge investment, huge return.'”
The development of a working chip prototype can cost more than $500 million, so the dip in funding threatens the prospects of chip startups. The developments have also caused a shift in investor demand. Companies must be able to show a product within months of launch or one that is already generating sales in order to attract investment.
Read more: Biggest Chip Deal In History Called Off
In addition, a number of chip startups are facing difficulties related to litigation and difficult economic conditions. One example is the secretive Rivos, which is embroiled in a lawsuit with Apple and is having difficulty raising capital.
Overall AI chip fundraising this year stands at $881.4 million. In comparison, funding for AI software and related technologies has brought in $24 billion in the same period.
Chip companies are now pinning hopes on AMD and Intel, which plan to launch chips as alternatives to Nvidia’s current market dominance. New investments in chip startups have dropped from $200-300 million to around $100 million.
At least two chip startups have succeeded in attaining funding recently despite the downturn. They have done so by touting their potential customers or their relationships with well-known executives.
Both Intel and AMD are eyeing a piece of the pie and chip startups are hopeful that new competition will help open a window for increased venture funding. It’s unlikely, however, that chip investors will reverse course until new products prove their capabilities.