Alphabet’s CapitalG Backs AI Chip Startup Celero at $3 Billion Value

Celero Communications, a maker of networking chips, has raised $275 million in a funding round that values the startup at more than $3 billion, tapping into demand to improve the efficiency of AI data centers.

The financing, set to be announced on Tuesday, was co-led by Atreides Management, Valor Equity Partners and CapitalG, Alphabet Inc.’s venture capital arm. Atreides managing partner and Chief Investment Officer Gavin Baker is joining the startup’s board. Founded two years ago, Celero develops coherent digital signal processors designed to speed up data transmission for artificial intelligence systems over fiber optic cables. The company’s product is useful for connecting nearby data centers, as well as different racks across a single facility, to create a larger cluster of AI chips.

“As these systems grow, they need to move more data at a faster rate and cover greater distance over fiber optic cable, and the existing optical transmission technology is hitting a limit,” said Nariman Yousefi, Celero’s president and chief executive officer. “The transition to coherent technology is absolutely required to enable all this future scaling for AI.”

Yousefi and co-founder Oscar Agazzi are longtime networking veterans who’ve now worked together at five companies, including most recently serving as executives at Marvell Technology Inc. Yousefi also spent 17 years at Broadcom Inc., including as general manager of the networking unit.

Celero has developed several technological innovations that Yousefi said enables data transfer to move faster and over longer distances. The company is using Taiwan Semiconductor Manufacturing Co.’s 2-nanometer process technology, the most advanced that’s commercially available, and has validated that its chip works. Next, Celero needs to finalize the design and start up production, a process that Yousefi aims to transition to next year.

As AI systems try to push more data faster and over longer distances, networking will increasing rely on optical technology that uses light to transmit data, said James Luo, a general partner at CapitalG. Currently, for example, some of Nvidia Corp.’s chip racks rely largely on copper, but there’s a risk of too much information getting lost as data transfer needs evolve.

“Light is just way more efficient,” Luo said, even for “short distances.”

Celero’s products will compete with existing networking vendors like Marvell, Broadcom and Cisco Systems Inc., but will also have to work with and plug into gear from other firms. The company is targeting the biggest cloud companies as customers.