Elon Musk’s artificial intelligence startup, xAI, is doubling its stakes and raising $20 billion in funding — twice as much as previously planned. The key investor is chipmaker Nvidia, which is investing up to $2 billion in a complex deal built on a processor purchase and leaseback scheme, Bloomberg reported on October 8.
This funding round has a unique structure designed to reduce risks for investors. The funds are not being invested directly into the capital of the loss-making startup xAI, but into a specially created company (Special Purpose Vehicle, SPV).
The scheme will work like this:
- Investors, including Apollo Global Management and Valor Capital, are investing $20 billion ($7.5 billion in equity and $12.5 billion in debt) in the SPV.
- This company will use all the funds raised to purchase the latest processors from Nvidia.
- Startup xAI leases these chips to an SPV for five years for its giant data center “Colossus 2” in Memphis.
- Investors get their investment back and earn a profit from the rental payments that xAI pays.
This model is less risky because the investment is secured not by the startup’s promises, but by real, highly liquid assets — Nvidia chips, for which there is huge demand.