More than a month has passed since NVIDIA's agreement with chip startup Groq was finalized and announced on Christmas Eve. Under the deal, NVIDIA will license technology from Groq and hire its key executives, including CEO Jonathan Ross. Specific terms of the transaction are now becoming clearer.
Last month, Groq informed its shareholders that, according to the licensing agreement, the company expects to receive $17 billion in cash from NVIDIA, to be paid in three installments by the end of this year. An email sent by the company to shareholders revealed that Groq shareholders have already received $7.6 billion of that amount this month.
This dividend payment is calculated at $64 per share, approximately double the price investors paid in a funding round this past September. That round raised $750 million and was led by Dallas-based Disruptive. For investors who participated, including BlackRock, Neuberger Berman, and smaller firms such as 1789 Capital, where Donald Trump Jr. works, this represents a favorable outcome.
The returns for Groq's shareholders are broadly in line with those seen by other startups following similar licensing deals. Such agreements have become a popular quasi-acquisition format, allowing companies to largely circumvent antitrust scrutiny. For instance, after Google entered a comparable licensing pact with Character.AI, investors from that company's last funding round are projected to receive returns about 2.5 times their entry price. In a similar deal between Microsoft and Inflection AI, investors from the final round are expected to see a 1.1x return.
Early investors in Groq, such as Social Capital, led by Chamath Palihapitiya, stand to gain even more substantial returns. According to Groq's corporate registration documents, its Series A round was led by Social Capital, with shares priced as low as 97 cents each.
Groq shareholders, including employees holding vested stock, are set to receive additional payments. Based on information provided by Groq to shareholders last month, out of the total $17 billion cash payment from NVIDIA, shareholders are expected to receive approximately $10.3 billion in aggregate.
The remaining portion will go to the U.S. government and Groq employees. Groq is required to pay taxes on the licensing fees received from NVIDIA. U.S. tax law treats licensing fees as ordinary corporate income, taxed at a 21% rate; the state of California, where Groq is based, levies an additional 8.8% tax.
According to people familiar with the matter, Groq also cashed out unexercised employee stock options, which consumed a significant portion of the funds paid by NVIDIA. It remains unclear what other payments may be included in the publicly stated total transaction value of $20 billion. NVIDIA did not respond to a request for comment.
Groq also notified shareholders that they may receive additional dividends if the company is sold or liquidated, and that the board is evaluating all feasible options. As of now, no buyer has emerged, but one of NVIDIA's competitors could potentially acquire Groq to prevent other firms from accessing its intellectual property in the future.
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