Groq’s CEO said the company came close to running out of money a few years ago.
The semiconductor startup, founded by ex-Google engineers, cut most employees’ salaries in favor of equity.
Groq recently secured $1.5 billion from Saudi Arabia to expand AI chip delivery to the country.
Semiconductor startup Groq was once so close to going broke that the CEO took inspiration from the US’s fundraising during World War II.
Jonathan Ross, who founded the company in 2016 with a group of former Google engineers, said that it took seven years to find a product that would sell.
When a cash crunch approached, the CEO told his employees, “‘We’re going to run out of money. We need you to trade salary for equity,'” Ross said in an episode of The Twenty Minute VC podcast uploaded on Monday.
He likened the ask to World War II bonds, through which governments asked citizens to help finance their military efforts amid a depressed economy.
“We literally took pictures of the war bonds and we put Groq Bonds on it instead,” he said.
Ross said it was an “intense” decision because people who had left their careers elsewhere and had families were banking on him. He said that they were worried everyone would leave — but 80% of employees participated. The cash compensation reduction helped Groq stay afloat before the startup raised the first portion of a $300 million fundraising round.
In 2021, the AI hardware and software company closed a $300 million funding round, co-led by Tiger Global Management and D1 Capital.
Last week, Grok inked a deal for $1.5 billion from Saudi Arabia to expand delivery of its advanced AI chips to the Middle Eastern country. In August, the company was valued at $2.8 billion after it raised $640 million from a round led by BlackRock, Cisco Investments, and Samsung Catalyst Fund.
Paying employees partially in equity instead of all cash is common for both public and private tech companies. These shares encourage employee retention and serve as a performance incentive. Employees often trade higher cash compensation at established companies for lower cash and equity options at a startup, betting the equity could soar.
Early-stage startups sometimes temporarily reduce cash compensation in favor of equity in the company when they are in danger of running out of money. Grok’s CEO is one of the few business leaders who has been public about the decision.
“If you lean towards that vulnerability, people are often going to go with you,” Ross said on Monday about his employees sticking with Groq.
