Garage Capital and Chamath Palihapitiya were early backers of Groq.
Nvidia launched a $20 billion call for AI infrastructure startup Groq over the holidays. Several Canadian investors backing the San Jose, California-based startup are poised to make big profits.
The tempting deal, which Groq pitched as a non-exclusive licensing partnership, brings key Groq executives to Nvidia and licenses its intellectual property to the larger chip company. Groq will remain an independent company, the statement said.
“We are very glad to have been a part of this journey and to have seen Grok from the ground.”
Mike McCauley
Garage Capital
Critics have suggested the deal could be an attempt to avoid scrutiny from antitrust regulators, according to research firm Hedgeye Risk Management. calling it “essentially an acquisition.” Nvidia, whose market capitalization briefly topped $5 trillion this year, holds a larger share of the market for its artificial intelligence chips compared to rivals AMD and Intel. Nvidia has invested in other artificial intelligence giants this year, including Anthropic and OpenAI, which continue to buy Nvidia hardware to build new data centers and increase computing power.
Canadian-American venture capitalist Chamath Palihapitiya is poised to make a significant profit from the deal, as his firm Social Capital led Groq's $10 million Series A round in 2017 and then participated in Groq's $60 million fundraising in 2018, reports TechCrunch at that time. Palihapitiya also served on Grok's board of directors until 2021.
IN publish on X On December 24, Palihapitiya shared his 2016 investment memo, in which he laid out his case for backing Groq at a pre-money valuation of US$25 million.
“There is an opportunity to create a new stack that will enable a broad machine learning ecosystem to be used in most software applications,” the investment memorandum states.
Garage Capital, based in Kitchener-Waterloo, was another Canadian investor to join with a $10 million investment in 2017. Led by Waterloo alumni and Vidyard co-founders Michael Litt, Mike McCauley and Devon Galloway, Garage Capital is an early stage and early stage development firm investing in a range of industries from artificial intelligence to defense technology. Garage Capital is currently investing from its latest fund, which closed earlier this year, McCauley said.
McCauley said in an interview with BetaKit on Monday that while he wouldn't give Garage Capital's exact profit from the Nvidia deal, it is a “terrific result” for venture capital and represents its largest dollar-for-dollar investment to date.
McCauley said he met Groq founder Jonathan Ross when they worked together at Google X, his research and development division. He noted that Google co-founder Sergey Brin often came to chat with Ross, which suggested to McCauley his “genius and insight.” McCauley said he helped Ross meet other interested investors when he founded Groq and joined the round himself.
Garage Capital's initial check size was standard for “humble garage beginnings,” McCauley said. The firm has invested in Groq six times, including this year.
“We're thrilled to be a part of this journey, seeing Grock from the ground up, from the inside out, all the way to such a wild result,” McCauley said. “It’s a really cool Canadian story.”
Cambium Capital, whose managing partner Landon Downes is based in Vancouver, also backed Groq's Series B investment.
Groq has about 90 Canadian employees and a large office in Toronto, according to its LinkedIn page. “Many Canadian employees are benefiting from these results,” McCauley said. According to AxiosGroq employees will benefit substantially. About 90 percent of Groq employees are reported to be joining Nvidia and will be paid in cash for the shares they own; Groq's remaining employees will also be paid for the shares vested, and all new employees will immediately vest a number of shares.
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Buy-lease style transactions have become widespread. increasingly common in artificial intelligence: a larger company takes away key talent and intellectual property, but leaves the remaining startup untouched. Unlike the Groq deal, some of these deals left very little for unacquired employees: Google last minute purchase part of Windsurf's AI programming assistant has deprived the company of key talent and left the remaining employees without meaningful compensation (until Cognition bought it soon after).
Canadian talent also ranks high in Grok's ranks. University of Waterloo graduate Adrian Mendez served as Groq's chief operating officer from 2018 to 2023. Sunny Madra, president of Groq, who joins Nvidia as vice president of hardware, graduated from the University of Ottawa. Madra later founded Extreme Venture Partners, where he worked embroiled in legal battle along with Palihapitiya for breach of contract and conspiracy to acquire startup Xtreme Labs at a reduced price.
Founded in 2016 by Google engineers, Groq develops hardware designed for large language models (LLMs) to perform computation, called language processing units (LPUs). The company was last valued at $6.9 billion in September and was projecting $500 million in revenue this year, according to company filings. CNBC. The company is a separate entity from Elon Musk's AI chatbot Grok. Grok publicly noted.
Grok has also been active in Canadian AI supply chains. In May, it struck a deal with telecommunications company Bell to supply chips and output technology for the planned construction six artificial intelligence data centers in British Columbia.
Nvidia, the world's most valuable company, valued at more than $5 trillion this year, is increasingly gaining dominance in the AI market thanks to its graphics processing unit (GPU) chips, which are used in most AI supply chains, including many in Canada. This acquired Canadian artificial intelligence startup CentML in June for an undisclosed amount after seed round support. The company has also entered into partnerships with Canadian telecommunications company Telusand a significant part recent federal investments at the University of Toronto will be used to purchase Nvidia chips.
Artistic image courtesy of Michael Litt via LinkedIn.
