VC and supercomputing: Access denied

When valuable areas of advanced, government-dependent technology begin to become privatized, venture capital investors always start getting interested. Unless they don’t.

High performance computing (HPC), once strictly the domain of academics and quasi-military agencies, is now being embraced by the likes of Google and Amazon as the technology’s role in artificial intelligence (AI) comes into focus. Some 60% of all data growth for the next 10 years is expected to be in video, especially surveillance systems with AI-powered pattern recognition.

HPC, also known as exascale computing, will not only be needed to run these systems infrastructurally, it is expected to trigger an avalanche of new business model creation related to technology upgrades and B2B servicing. In many respects, the segment is therefore seen as the next evolutionary step beyond cloud computing – a popular VC target.

The zettabytes of number crunching capacity required for this vision of the future has to come from somewhere, but it won’t be Silicon Valley. In the HPC world, US venture investors are known for their visceral rejections of supercomputing business proposals. There is some speculation that this toxicity could be a hangover of failed investments in years past, but there is little evidence to support the theory.

HPC’s emerging relevance to AI is supposed to be the technology’s breakthrough moment – when the commercial sector takes the reins of a government science project and turns it into a viable private investment opportunity. But to date, it remains VC-denied. The situation is exacerbated by HPC’s reputation as an “IQ-locked” technology, meaning that relevant skills are in such short supply, an entire business often hinges precariously on a single technician.  

There is reason to believe, however, that Asia Pacific could be the focal point for entrepreneurialism in HPC’s inevitable privatization. Earlier this year, Nyriad, a New Zealand-based supercomputing technology developer received an $8.5 million Series A round from a group of VCs led by Japan’s East Ventures. The company specializes in reducing hardware, operating and energy consumption costs for both computing and data storage through the use of special graphics processing circuitry.

It would have never worked in the US, despite the fact that Nyriad’s top brain, Alex St John, is a Silicon Valley veteran who has raised more than $150 million for various technology projects back home. Asia Pacific provided a better environment for sourcing early customers due to a prevailing regional tendency to prioritize infrastructure spending and a relative lack of IT conglomerates crowding out independent start-ups.

As a result, Nyriad raised its round in reverse. Both public and private sector customers across Australasia and Japan signed up early and were keen to back the company’s next growth phase. The targeted capital raise was already secured by the time VCs were invited to join. Corporates effectively wrote the term sheet and institutional investors jumped on board with essentially no negotiation.

“In Asia Pacific, governments are smaller and nimbler and they don’t have giant tech monopolies that dominate their purchasing, so it’s a lot easier for a start-up like us to test new ideas and model them,” St John told AVCJ. “In the US, it’s easier to get run over by the big names. Out here, there’s a lot more opportunity.”

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• Topics
• Australasia
• Support services
• Technology
• GPs
• North America
• Asia
• USA
• New Zealand
• East Ventures