Sam Altman-backed chipmaking startup Rain AI explores sale after $150M fundraising flops: sources
Rain AI — a San Francisco-based startup that says it's developing chips that are more powerful and energy-efficient than those currently being sold by giants like Nvidia — has been in talks to be acquired for several weeks, sources said.
It's unclear whether OpenAI has yet extended a formal offer for Rain AI, but one source said Altman — who was a major investor in Rain AI's $25 million seed round in 2022 — is circling after the Series B fundraising round collapsed.
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5 Sam Altman was an early investor in Rain AI.
AFP via Getty Images
'Sam Altman is looking to bail out his investment by having OpenAI acquire Rain for pennies,' a source close to the situation told The Post.
Co-founder Will Passo has quietly stepped down as Rain AI's CEO and has been replaced by fellow cofounder Jack Kendall, who is now listed as CEO on the company's website.
In an email from earlier this month obtained by The Post, Kendall confirmed that it had proven difficult for the company to close a Series B that would allow it to compete with industry giants like Nvidia and that, instead, Rain had pivoted to a search for a buyer.
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Kendall said Rain was burning through cash and would need to raise a $3 million bridge fund to keep the lights on until a deal was finalized. A private placement source said Rain AI has secured the bridge loan and has been 'making good progress in sales talks.'
'They are in active conversations with suitors,' the source said. 'These are major, major technological companies that are looking to compete in the chip space.'
That's after Rain's Series B round, originally expected to launch last December, had been postponed several times.
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5 Will Passo recently stepped down as Rain AI's CEO.
William Passo / LinkedIn
Kendall said Passo had stepped down for personal reasons and that his exit had impacted the firm's ability to raise its Series B. OpenAI has begun interviewing Rain AI employees as it assesses which ones to keep in a potential takeover, one of the sources said.
'It appears the founders are good engineers and poor salesmen,' a second source said. 'They were very young and Silicon Valley outsiders without academic or industry credentials. This has always kept them at a disadvantage.'
Rain 'has been very successful in the testing of the chips' but has struggled to turn its advanced tech into actual sales, the private placement source said.
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'The old CEO made some great hires but it is not a great business,' the source added. 'They couldn't get real accounts. They don't have contracts or letters of intent.'
5 Rain AI cofounder Jack Kendall has taken over as CEO.
Representatives for OpenAI and Rain AI did not return multiple requests for comment.
As The Post exclusively reported in November, Altman had been personally pitching OpenAI investors on backing Rain AI in the Series B round, which would have valued the startup at roughly $600 million.
Last year, Rain AI hired Apple veteran Jean-Didier Allegrucci, who helped the Big Tech giant develop its own computer chips to replace Intel hardware in its iPhones and Macs.
'Our novel compute-in-memory technology will help unlock the true potential of today's generative AI models, and get us one step closer to running the fastest, cheapest, and most advanced AI models anywhere,' Passo said in a statement at the time.
5 Rain AI makes advanced computer chips.
The turmoil at Rain AI comes during a period of fierce competition in the AI sector as OpenAI looks to fend off rivals like Elon Musk's xAI and Google.
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OpenAI recently abandoned plans to become a for-profit entity after facing fierce public pushback from the attorneys general of California and Delaware. Instead, the company will remain governed by a non-profit entity.
Altman's firm is also locked in a legal battle with Musk, who had sued to block the for-profit move and has argued OpenAI abandoned its original mission of building safe AI for humanity's betterment. OpenAI has argued that Musk is simply trying to slow down its progress.
5 OpenAI is one of multiple suitors for Rain AI.
REUTERS
In March, Nvidia and xAI joined a group that includes Microsoft, investment fund MGX and BlackRock to expand AI infrastructure in the US.
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The group collectively plans to invest more than $30 billion in AI-related projects.
Last December, Nvidia also joined xAI's $6 billion funding round as a strategic investor.
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