Apollo's strategy for the forefront of the AI ecosystem: Startups will need funding beyond venture capital earlier than ever before.

Apollo, known for its leveraged buyouts and large-scale financing deals, is quietly becoming an early shareholder in AI startups—in order to become their creditor later.

According to a recent report by The Information, Apollo Global Management is quietly positioning itself for early-stage funding rounds for AI startups, having already invested in data labeling company Mercor, chip company SiFive, and defense technology company Hadrian.

Apollo believes that startups in the AI hardware era will need funding beyond venture capital earlier than the previous generation of software companies. It hopes to build relationships through early-stage equity investments, thereby providing debt financing or asset-backed financing, replicating the $35 billion chip leasing deal it completed with Blackstone this year.

A new face in Mercor's $20 billion valuation round.

According to sources familiar with the matter, Apollo has invested tens of millions of dollars (in the low tens of millions of dollars range) in Mercor's latest funding round, which was led by General Catalyst. After the round, Mercor's valuation will reach $20 billion.

Mercor's business involves providing human annotation services to large AI companies such as Google, OpenAI, and Anthropic, helping them fine-tune model outputs. This business allows Mercor to have close access to the computing power needs of leading AI companies—which is precisely what Apollo is interested in.

Previously, Apollo also participated in SiFive's funding round in January of this year. The company, valued at $3.6 billion, focuses on chip design based on the open-source RISC-V architecture, competing with Arm's CPU solutions. In August, Apollo also participated in Hadrian's funding round, which valued the company at $7.8 billion. Hadrian primarily builds advanced facilities for defense and aerospace customers.

In the hardware era, startups needed "non-venture capital" earlier.

Apollo's logic is based on a key judgment: AI-era startups, especially in hardware and defense technology, will reach the ceiling of venture capital funding earlier than the previous generation of software companies.

According to sources familiar with the matter who spoke to the media, Apollo believes that hardware and defense technology startups require significant upfront capital to build equipment and facilities, and that large-scale mass production and commercialization often take several years. This is quite different from the past wave of software companies—which typically only sought debt financing after reaching a considerable size.

Apollo executives believe they can provide these startups with debt financing, asset-backed financing, or facilitate complex financing structures involving a mix of debt and equity, or multiple funding sources.

There is precedent: a $35 billion chip leasing deal

Apollo is not just talking the talk. Earlier this year, Apollo, together with Blackstone, led a $35 billion financing deal to purchase Google's chips and lease them to Anthropic—a direct application of its expertise in "asset-backed financing" in the field of AI.

Meanwhile, similar demand for structured financing is emerging in the market. Technology investment firm Coatue Management is reportedly partnering with chip startup MatX to establish a joint venture, providing financing and securing the manufacturing capacity for the latter's future chip components.

Differentiated path from peers

It's not new for large private equity firms and banks to get involved in venture capital, but the results have varied.

Earlier this year, Blackstone merged its growth investment division into the newly formed AI-focused BXN1, after its first growth fund underperformed comparable funds. Thoma Bravo, on the other hand, closed its growth investment division this year to focus on large-scale mergers and acquisitions.

Apollo is currently taking a slightly different approach: instead of setting up a separate venture capital-focused fund, it invests through its multiple existing funds, including its Hybrid Capital Solutions Fund (which itself invests in a hybrid of debt and equity).

In addition, Apollo announced a partnership with 8VC last October—8VC was founded by Palantir co-founder Joe Lonsdale. The two companies plan to invest billions of dollars in high-growth, capital-intensive companies in what Apollo calls the “American industrial renaissance,” covering areas such as AI, robotics, autonomous systems, biotechnology, and nuclear energy. Lonsdale stated at the time that this was a sector both institutions viewed favorably.

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