Graphcore Raises $222M, Valued at $2.77B - IPO Potential

Artificial intelligence-powered applications – encompassing everything from self-operating systems and pharmaceutical research to virus outbreak prediction and 5G network management – demand an unprecedented level of computational capability. Currently, a leading innovator in the design and manufacture of processors suited for these tasks has secured substantial funding to propel its expansion.

Graphcore, an AI chip manufacturer headquartered in Bristol, U.K., has obtained $222 million in a Series E funding round. According to CEO and co-founder Nigel Toon, this capital will be allocated to two primary objectives.

Firstly, Graphcore intends to further develop its technology, which is built upon an architecture known as the “IPU” (intelligence processing unit). This architecture provides competition to chips developed by companies such as Nvidia and Intel, all designed to optimize performance for AI applications. Secondly, the company will utilize the funds to strengthen its financial standing in anticipation of a potential initial public offering.

Toon stated that this funding brings Graphcore’s cash reserves to $440 million and establishes a post-money valuation of $2.77 billion as of the beginning of 2021.

“We are well-positioned to accelerate our growth and capitalize on the opportunities before us,” he explained. He cautioned that it might be too early to characterize this Series E round as a “pre-IPO” phase. “We have sufficient capital and this investment allows us to pursue that next stage,” he added, noting recent speculation regarding a potential listing on the Nasdaq in the U.S. rather than in the U.K.

This latest investment round was led by the Ontario Teachers’ Pension Plan, with participation from Fidelity International and Schroders, alongside existing investors Baillie Gifford and Draper Esprit. To date, Graphcore has raised a total of $710 million.

This Series E funding represents a significant increase in Graphcore’s valuation – the company’s previous funding round in February of this year, a $150 million extension to its Series D, valued the company at $1.95 billion – but it also concludes what Toon described as a “challenging” year for the company, and the world as a whole. 

“I consider this year to be a temporary setback,” he said. “It presented challenges, but we have restructured to accelerate progress.”

The year unfolded in distinct phases for the company.

On the one hand, Graphcore continued to advance its hardware and software product development, producing increasingly powerful processors in smaller form factors. In July, the company launched the second generation of its primary chip, the GC200, and a new IPU Machine based on it, the M2000, which the company claimed was the first AI computer to achieve a petaflop of processing power within the size of a pizza box.

However, the development and launch of these products were largely conducted with a remote workforce, as employees transitioned to working from home to mitigate the spread of the global coronavirus pandemic and the resulting disruptions to operations.

The broader industry landscape, and corporate spending and investment patterns during a period of uncertainty, have also likely undergone changes. Companies like Amazon, Apple, and Google are intensifying their own chipmaking initiatives, while others are experiencing a wave of consolidation, as exemplified by Nvidia’s proposed acquisition of ARM in a $40 billion transaction.  

These factors present challenges for a growing company like Graphcore. Toon affirmed that Graphcore has no plans for acquisitions, preferring to focus on organic growth.

He also expressed his disapproval of Nvidia’s acquisition of ARM, stating, “If we are not cautious, the market could become overly consolidated, potentially stifling innovation.” He added, “We have communicated our concerns to the U.K. government. We do not believe the Nvidia ARM deal is beneficial.” (Notably, he and Graphcore co-founder Simon Knowles previously sold a prior venture to Nvidia.)

He refrained from discussing new customers for Graphcore but indicated that there has been interest from companies in the financial services, healthcare, automotive, and internet sectors – “large hyperscalers,” as he described them – who require the technology Graphcore is developing to operate their systems or to enhance processors they are independently developing. (Strategic investors in the company include Microsoft, BMW, Bosch, and Dell.)

Graphcore reported that its latest products are now being shipped to customers “in production volumes,” and Toon anticipates announcements regarding several significant clients in the coming year, potentially during a period that may prove more stable for the chip industry compared to 2020.

It is this demand for advanced technology, and specifically the escalating processing requirements of next-generation computing, that investors believe will continue to drive business to Graphcore as the current year concludes.

“The market for specialized AI processors is projected to grow substantially in the coming years, driven by major computing trends such as cloud technology, 5G, and increasing AI adoption. We believe Graphcore is well-positioned to become a leader in this field,” stated Olivia Steedman, senior managing director at Teachers’ Innovation Platform (TIP) at Ontario Teachers’. “TIP concentrates on investing in technology-driven businesses like Graphcore that are at the forefront of innovation in their respective sectors. We are pleased to collaborate with Nigel and his capable management team to support the company’s continued expansion and product development.”