Cerebras Systems’ IPO was a huge success on Thursday, generating billions for itself, its founders and its major investors.
Among the big winners was Benchmark, which owns 9.5% of the company’s shares. One of the company’s general partners, Eric Vicheria, has been on Cerebras’ board since 2016, the year the AI chipmaker was founded, after co-leading its $25 million Series A round.
But those billions only happened to Benchmark because Vishria met the startup almost against his will, he told TechCrunch.
“It was five founders and a group, and this was our first hardware investment in 10 years,” Vecheria said of that first meeting. “I’ve been a venture capitalist for about 18 months.” (Before becoming a venture capitalist, Vishria sold the social browser startup he co-founded, RockMelt, to Yahoo for $60 million to $70 million in 2013.)
Benchmark is known to be selective in the companies it selects and rarely backs hardware companies, so much so that Vishria was kicking himself for giving time to Cerebras.
“Why did you have this meeting?” He kept muttering. At one point, he texted his assistant, who managed his calendar, and eavesdropped on her: “Why did you let me come to this meeting?” Vishria recalls.
But his grumpy attitude disappeared by the third slide, as co-founder and CEO Andrew Feldman laid out grand plans for Cerebras.
“The first slide is the title slide. The second slide is the team. I was like, ‘Oh, this team is really good.'” And the third slide is something along the lines of, “GPUs actually suck at deep learning.” It just happened to be 100 times better than CPUs. As soon as he said that, the light bulb went off, Vishreya recalls. “I was like, ‘Oh my God, of course. Why would a GPU be the thing for AI?’
However, this was years before Google’s famous Transformer search – the 2017 research that laid the foundation for modern AI – which eventually led to ChatGPT. Cerebras was promoting a new type of supersized chip, designed for AI training, a chip the processor world was not ready to manufacture.
Vishria was intrigued enough to discuss the matter with some of Benchmark’s partners, who quickly told him that they also didn’t know enough about the hardware. They said that if he wanted this deal, he would have to bring in one of Benchmark’s original founders from the 1990s, who understood it.
Vicheria didn’t hesitate to schedule a meeting to introduce Feldman to co-founder Bruce Dunleavy, who quizzed the founder on chip packaging, refrigeration and more.
“Most of that meeting was like a dog watching TV to me,” Vicheria joked, because he understood so little. After the pitch, Dunleavy warned that what Cerebras was trying would be difficult. Others have tried and failed. But he thought this team had a chance. However, he was concerned that there was no market for the chip.
Although Vishria didn’t fully understand the technology, he was convinced that if Cerebras could “make AI faster,” there would be a market for it, and this team had the wherewithal to succeed, he said. They previously sold startup SeaMicro to AMD.
“The advantage of a previously successful exit is that it erases some of the uncertainty in the minds of VCs,” Feldman tells TechCrunch. “We didn’t just fall off the back of a turnip truck. We were an experienced team.”
Hardware is tough
What followed was eight and a half years of hard work as Cerebras dealt with struggle after struggle to build its product.
Feldman and his Cerebras co-founder and CTO Sean Lie had to devise new cooling methods to prevent a chip of this size from burning up when extracting power. They had to invent a machine that could drill 40 nails into a chip at once without breaking it. And so on.
The standard investor has repeatedly thought to himself: “What do we do?”
In addition, the hardware is expensive. While the company raised half a billion dollars from a long list of investors, its chips were still under development. It had to rally again in the venture capital bear market of 2022.
“You don’t have a lot of interest in the company yet, so yeah, it’s been very difficult here,” Vicheria recalls.
But about 18 months ago, everything changed. Cerebras chips, designed for training and successfully manufactured by TSMC, the world’s largest chip manufacturer, have been shown to be better for inference – running AI models to generate responses, rather than primarily teaching them. Once we realized this, the AI world became insatiably thirsty for this type of computing. It had a large number of customers and revenue.
Instead of another private round, Cerebras attempted to go public in 2024, but found itself caught in US government scrutiny over national security concerns stemming from a large investment by its only major client, Abu Dhabi-based cloud services provider G42. Public investors were also not keen on their reliance on G42 coupled with huge losses.
The delay was a blessing in disguise. Today, OpenAI and AWS are also big customers. Cerebras doubled its revenue and reported a profit last year.
Vishria says he gives all props to the Cerebras team for their “perseverance, creativity and adaptability as well.”
But this is also a feather in an investor’s ability to find a winner so far outside the company’s usual comfort zone. Benchmark owns 17,602,983 shares worth $3.3 billion at the IPO opening price of $185, and more than $5.3 billion if the first day trading price continues above $300. It can only sell shares after the six-month embargo period ends – a standard restriction that prevents insiders from selling immediately after a company goes public.
The company bought about 80% of those shares in early rounds for about $18 million, various disclosures indicate, Vishria confirmed to TechCrunch. It bought the rest in later, more expensive rounds, which cost it about $250 million, Cerebras revealed in its S-1 report.
All told, the venerable venture capital firm spent perhaps $270 million for this stake, which is worth several billion or more, depending on how the stock price holds up.
Venture capital firm employees get bonuses when investments deliver significant returns – as in the case of Vishria’s assistant, who was saddened that he agreed to the first meeting? “I think she’ll do well, very well,” he laughed.
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