Apollo Backs AI Startups in Bid to Bankroll Hardware Boom

Apollo Global Management, known for leveraged buyouts and hefty financing deals, has started investing in AI and related hardware startups with the ambition to lend money to them in the future.

In one previously unreported deal, Apollo has already invested in the low tens of millions of dollars in Mercor’s latest funding round, which is set to value the data-labeling startup at $20 billion, according to people familiar with the matter. It has also invested in chip startup SiFive and in Hadrian, which says it’s building AI-powered factories, in transactions the companies disclosed earlier this year. It expects to make more investments in these categories, the people said.

Apollo’s forays are the latest attempt by a large financial institution to expand into venture capital investing, with an eye on cultivating relationships for its main business. In this case, Apollo is responding to how the AI boom has rapidly transformed the landscape for financing startups. Model makers like Anthropic and OpenAI have entered into more than $1 trillion collectively in deals for chips, data centers and leases, in some cases involving private equity firms and complicated financing, to power their AI.

Meanwhile, demand for the hardware to run and train AI has given rise to a new generation of startups developing chips or machinery that require debt or other types of financing to expand.

Apollo, which manages around $1 trillion in assets, expects more AI startups will need financing beyond VC before long—unlike the last generation of software startups, which didn’t take on debt until they were much bigger companies, according to people familiar with the matter.

In addition to making equity investments, Apollo executives believe they can provide the startups with debt- or asset-backed financing or help arrange other financing structures that involve a mix of debt and equity or multiple financial backers. Hardware and defense tech startups need more up-front investments to get their equipment and facilities up and running, and it may be years before they start manufacturing in large volumes and commercializing their products.

In one sign of those needs, tech investor Coatue Management is working on a joint venture with chip startup MatX to finance and secure manufacturing capacity for components of the latter’s future chips.

Apollo has already been financing AI startups’ demand for hardware. Earlier this year, Apollo led a $35 billion financing package with rival Blackstone to buy Google’s chips and lease them to Anthropic.

For years, large banks and private equity firms have dipped their toes—with mixed success—into venture investing to knit relationships with founders that could eventually yield blockbuster financing or advising deals.

Earlier this year, Blackstone folded its arm that made venture investments in growth-stage companies into a new AI-focused unit, BXN1, after its first growth fund underperformed funds of the same vintage, according to PitchBook. Thoma Bravo shuttered its growth arm earlier this year to focus on making large acquisitions.

For now, Apollo is taking a slightly different approach to those competitors, which, along with KKR, had set up separate funds focusing on growth-stage startups. Apollo is instead investing in these startups through a range of funds it manages, including its hybrid capital solutions, which makes a mix of debt and equity investments, according to people familiar with the matter. It has not announced any plans to form a separate fund focused on venture investments.

It is also working with 8VC, the venture firm founded by Palantir co-founder Joe Lonsdale. Apollo announced a partnership with 8VC last October to put several billion dollars into fast-growing but cash-hungry businesses building what the two firms called the “American industrial renaissance.” That could include AI, robotics, autonomous systems, biotechnology and nuclear energy companies, Lonsdale said at the time.

In January, Apollo invested in SiFive’s $3.6 billion–valuation funding round. The 11-year-old company develops chips using the open-source RISC-V architecture, a technology that competes with Arm’s designs for central processing units. In August, Apollo backed the $7.8 billion–valuation round for Hadrian, which builds advanced factories for defense and aerospace companies and agencies.

Mercor is in the process of finalizing a funding round led by General Catalyst, The Information reported. Mercor helps Google, OpenAI, Anthropic and other companies train their models by providing human contractors that fine-tune responses. The business gives Mercor a front-row seat to the computing needs of the largest AI companies.