Chain Reaction raises $70M, emerges from stealth to launch chips designed to compute encrypted data

As the networking industry explores homomorphic encryption, blockchains and other cryptographic techniques to take data protection and complex computing to the next level, one big roadblock to many of these working effectively and at scale has been the compute power required to run them. Today, one of the startups that believes it can address that issue is emerging from stealth armed with a hefty amount of funding to take on the industry.

Chain Reaction, an Israeli startup that is designing semiconductors and related architecture to use in blockchain and privacy hardware running cryptographic processes, has closed a round of $70 million, a Series C that brings the total raised by the company, while still in stealth mode, to $115 million. The company is not talking valuation, but we understand that it's approaching $500 million.

The round is being led by Morgan Creek Digital, with Hanaco Ventures, Jerusalem Venture Partners, KCK Capital, Exor, Atreides Management and Blue Run Ventures also participating.

The funds will be used for expanding the team -- there are currently 100 people with the startup, including alums from Nvidia, Mellanox, Israeli intel and TSMC -- and to get its first products out to market this quarter (Q1 2023). Those products will include, the company said, Application Specific Integrated Circuits (ASICs) and related systems, as well as solutions for cloud data infrastructure designs to run privacy enhancing technologies (as some of the cryptographic security approaches are sometimes described) -- the idea being that Chain Reaction's tech will reduce electricity consumption and speed up compute because their design is optimized for cryptographic calculations and thus is more efficient.

Chain Reaction currently works with TSMC as its sole foundry partner, with no plans at the moment to take on that work itself.

If a semiconductor company aimed at some of the most cutting-edge -- and some would argue not quite yet battle tested -- computing technologies sounds like a moonshot, the pedigree behind this particular startup de-risks that proposition. Its co-founders are CEO Alon Webman and CTO Oren Yokev, respectively the co-founder of Mellanox (which Nvidia acquired for nearly $7 billion after a bidding war with Intel) and a decades-long head of first cyber and then all tech for the Israeli Prime Minister.

Chain Reaction has been building in stealth mode for around six years, and Webman (perhaps one of the most perfect surnames ever for a tech entrepreneur) tells me that the original impetus for the company was for privacy applications -- and specifically to build processors to help handle the compute around privacy-related encryption technologies.

Homomorphic encryption -- an approach to data protection and privacy that involves encrypting of data end to end and throughout the process of how it gets used -- was seeing some breakthroughs in the academic sphere, although the pesky practicalities of how to actually apply it, and the compute power required to do so, were already presenting major roadblocks.

Coming at it from the processing side, he and Yokev could see that this was the opportunity to build to solve, and if they could, it would be a home run. "We could become the next Nvidia," Webman said in an interview. While building in stealth, they were approached by people working in blockchain, who were finding their own compute roadblocks, in the mining of cryptocurrency, which is well known as an energy and compute resource hog.

As a consequence of that, data centers and others building hardware for mining, interestingly, became Chain Reaction's first customers (and most likely the origin of the company's name). But while these days Chain Reaction describes itself as a company focused on both opportunities, Webman said that while "privacy is the longer play," it will be the privacy applications, and that computing being carried out in the cloud, that will be the opportunities with the bigger market potential and longevity for the business.

"We think our solution will make homomorphic encryption viable," he said. "We have unique architecture and we also understand the limitations on compute and memory among processors today. We have the solution needed to make it possible."

Chain Reaction's emergence underscores an interesting arc in the world of semiconductors. In the last couple of decades, but especially in the last 10 years or so, there has been a profusion of startups in the space building out what many believe is the next generation of where chips will be needed: to support complex algorithmic calculations for artificial intelligence as it applies to a multitude of industries and applications.

Webman thinks that Chain Reaction is actually a signal of what may well dominate the generation of chips after that: cryptographic computations.

"AI brought the last wave of semiconductor companies to market because they provided the acceleration and scale AI needed," he said. "The same will apply here. We may be the first movers but we think this is the next disruptive technology in the cloud, and you will see others. I think there will be."

“We fully expect Chain Reaction’s blockchain products will become the new industry standard in blockchain compute infrastructure, laying the foundation for all future sustainable blockchain technologies” said Mark Yusko, CEO and CIO of Morgan Creek Capital Management and managing partner of Morgan Creek Digital, in a statement. “Blockchain is the key to securing democracy, decentralization, and freedom, but it is compute intensive. Chain Reaction’s products will shore up the value of predominant blockchain technologies and revolutionize use-cases for blockchain technologies in the not-so-distant future.”

Pasha Romanovski, founding partner at Hanaco Ventures, added: “Hanaco has believed in Chain Reaction from the get-go. We saw the potential of combining experience and expertise in analog and system design with algorithms and cryptography to engineer the future of compute infrastructure. This is just the beginning from Chain Reaction, as they make great strides in disrupting the traditional and complex market of data center, cloud, and through to edge computing hardware infrastructure.”