HardTech Summit leaders are optimistic about Canadian mergers but want more support for scaling businesses.
IN Venture laboratory's HardTech Summit This week, the focus has been on how to build Canada's semiconductor sector amid growing pressure from the United States (US) and changing geopolitical conditions.
These conversations come as several promising Canadian artificial intelligence (AI) chip startups have either moved south or been snapped up by larger American players, including CentML, Hyperlume, TenstorentAnd Untie the AI.
“The market confirms that what we are building is expensive, people want it and are willing to pay for it.”
Neeraj Mathur, Blumind
Canadian semiconductor executives BetaKit spoke with at the summit said recent activity is positive and believe a successful ecosystem includes both independent domestic startups and large foreign players with deep operations in Canada.
However, they also argued that Canada should do more to support its own chip companies, especially at later stages, to ensure that all the economic benefits from local innovation, talent and intellectual property do not flow south.
Newly based Toronto-based AI chip maker Untether filed for bankruptcy after purchase American semiconductor company Advanced Micro Devices (AMD). Similar company Hyperlume from Ottawa also recently sold to the American company Credo just a few months after raising $12.5 million USD seed round to commercialize its AI data center technology. Toronto-based CentML, which helps businesses make the most of their existing hardware, has been acquired by US AI chip giant Nvidia in a deal that could reportedly top 400 million US dollars.
This flurry of Canadian AI chip mergers and acquisitions follows Toronto-based AI semiconductor developer Tenstorrent. moving in the US last year to help the company raise more money from US investors and prepare for a possible public listing. Shortly thereafter, the company closed a Series D worth nearly US$700 million at a valuation of US$2.6 billion.
Neeraj Mathur, co-founder and CEO of Ottawa-based artificial intelligence chip developer Bloomindtold BetaKit that this recent activity sends a “very positive” signal about the growing recognition of the importance of semiconductors to the artificial intelligence stack and the level of Canadian innovation in the field, adding that it has led to increased investment in startups like his own.
“The market confirms that what we are building is worth a lot, people want it and are willing to pay for it,” Mathur said.
Kevin Conley, CEO of Kitchener-Waterloo-based semiconductor startup Applied Brain Research, told BetaKit he's “not worried” about the deals. He said the US views Canada “as a treasure trove of artificial intelligence talent.”
CONNECTED: Untether AI declares bankruptcy after acquiring AMD
The Silicon Valley executive, who has spent his entire career in the chip business and previously held executive positions at SanDisk, said it's “really difficult” for smaller semiconductor companies to grow into larger players. He noted that large chipmakers typically grow through mergers and acquisitions.
“This is a really hard business to scale, so you have to have deep pockets or an incredible ability to attract customer revenue,” Conley said.
Building high-tech startups in Canada has some advantages and disadvantages. Conley noted that Canada has “a lot of support” that the U.S. doesn't have, such as government incentives and research programs.
Hamid Arabzadeh, chairman and CEO of Ottawa chipmaker Woundedhowever, noted on stage that the country lacks the later-stage risk capital to scale high-tech companies. His statement appears to be reflected in data from the Canadian Venture Capital and Private Equity Association (CVCA).
Mathur argues that Canada is great at supporting early-stage startups but poor at helping large-scale companies, which typically require bigger bets—more capital and more risk—to achieve independent success.
CONNECTED: San Jose-based Credo bought Hyperlume for an undisclosed sum
“That’s when our risk appetite kicks in,” he said. “There is limited support for these types of companies in Canada, which is why they become prime acquisition targets.”
Despite this, Mathur expects US buyers who have operations here will generate more additional revenue in the future.
“There is limited support for these types of companies in Canada, which is why they become prime acquisition targets.”
Hyperlume co-founder and former CEO Mohsen Assad predicts this will continue in the long term for his company, which he believes will be able to accelerate its vision under the Credo umbrella. Assad, who is now Credo's senior director of core technologies, told BetaKit that Hyperlume's Canadian team remained in Canada and said the company was expanding its presence in the country.
Assad argued that deals like these retain and create more cutting-edge tech jobs in Canada, providing more support over time and stimulating more domestic entrepreneurship—something he acknowledged the industry could also use.
“It's not just one recipe… sometimes it makes sense to go down path number one, sometimes it makes sense to go down path number two,” Assad said.
Toronto Global vice-president of investment attraction Daniel Hengeveld also believes foreign direct investment can play a role in the development of the Canadian chip industry.
“There is a way to open the door for foreign corporations to invest and do great things here,” Hengeveld said on stage. “If we keep that door closed … then we automatically deny ourselves the ability to compete in that space.”
Fellow panelist Chris Smith, AMD's corporate vice president and head of the Markham design center in Toronto, said Canada's need to invest in domestic companies and infrastructure should not prevent the country from taking advantage of companies like AMD that are interested in building a strong presence here.
AMD has done just that since acquisition Greater Toronto Area (GTA) graphics chip developer ATI Technologies in 2006. Smith said AMD currently employs more than 3,000 engineers in the GTA, which represents one of the US semiconductor giant's largest global research and development centers.
As for what Canada can do to develop its semiconductor ecosystem beyond simply supporting greater scale, Hengeveld said the country must choose its own path because it doesn't have the capacity to invest in everything at once. Instead, he wanted the country to focus on strengths such as talent.
Although Smith believed that some entrepreneurs wanted to move to the US because it was easier to raise money there, he believed that Canada remained a place for talent and research. He wanted to find ways to attract this talent.
“We Canadians have this modest tendency, and I think overall that's great. However, we're talking about a global war for talent and innovation, and I think as such we need to be bold,” Smith said.
Arabzadeh said on stage that he believes Canada needs to encourage local industry leaders with deep experience to leave multinational chip firms and start new companies. He suggested the government could help by eliminating the capital gains tax on semiconductor company windfalls.
He shared this recommendation with the feds, telling them they would not lose any money given the current activity in this area.
“We need to think outside the box,” Arabzadeh said. “We’re such a small community.”
All images courtesy of VentureLab
