Known for leveraged buyouts and mega-financing deals, Apollo is quietly becoming an early shareholder in AI startups, positioning itself to become their lender down the road.

According to the latest report from The Information, Apollo Global Management is quietly participating in early-stage funding rounds for AI startups, having taken stakes in data-labeling company Mercor, chip designer SiFive, and defense technology firm Hadrian.

Apollo believes startups in the AI hardware era will need non-VC capital earlier than the previous generation of software companies. By building relationships through early equity investments, it aims to offer debt financing or asset-backed financing, replicating the model of its $35 billion chip leasing deal with Blackstone earlier this year.

Apollo's stake in Mercor: new face in the $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 range in Mercor's latest funding round, led by General Catalyst, which values Mercor at $20 billion upon completion.

Mercor provides human annotation services to major AI companies such as Google, OpenAI, and Anthropic, helping them fine-tune model outputs. This business gives Mercor close access to the computing power needs of top AI companies, which is precisely the core interest for Apollo.

Previously, Apollo also participated in SiFive's funding round in January this year, which valued the company at $3.6 billion. SiFive focuses on chip design based on the open-source RISC-V architecture, competing with Arm's CPU solutions. In August, Apollo followed up with an investment in Hadrian's funding round, which values the latter at $7.8 billion, primarily building advanced factories for defense and aerospace clients.

Why early-stage hardware startups need non-VC funding sooner

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

Sources told media that Apollo internally believes hardware and defense tech startups require substantial upfront capital to build equipment and facilities, often years away from mass production and commercialization. This is fundamentally different from past software companies, which typically did not introduce debt financing until they reached significant scale.

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

A precedent: the $35 billion chip leasing deal

Apollo is not just theorizing. Earlier this year, Apollo co-led a $35 billion financing package with Blackstone to purchase Google chips and lease them to Anthropic. This is a direct application of its expertise in asset-backed financing logic within the AI space.

Meanwhile, similar structured financing needs are emerging in the market. Reports indicate that tech investment firm Coatue Management is working with chip startup MatX to establish a joint venture, financing and securing manufacturing capacity for components needed for MatX's future chips.

How Apollo's approach differs from peers

Large private equity firms and banks venturing into venture capital is nothing new, but results have been mixed.

Blackstone earlier this year merged its growth investment unit into its newly created AI-focused division BXN1, after its first growth fund underperformed comparable funds over the same period. Thoma Bravo, meanwhile, closed its growth investment unit this year to focus on large-scale buyouts.

Apollo is currently taking a slightly different path: rather than setting up a dedicated venture capital fund, it is investing through its existing funds, including its hybrid capital solutions fund, which inherently makes blended debt-equity investments.

Additionally, Apollo announced a partnership with 8VC in October last year, founded by Palantir co-founder Joe Lonsdale. The two plan to invest billions of dollars into high-growth but capital-intensive companies aligned with what Apollo calls the "American industrial renaissance," spanning AI, robotics, autonomous systems, biotechnology, and nuclear energy. Lonsdale noted at the time that this direction represents a shared focus for both institutions.