Nvidia nearly went out of business in 1996 trying to make Sega's Dreamcast GPU — instead, Sega America's CEO offered the company a $5 million lifeline

Sega Dreamcast
(Image credit: Evan-Amos on WikiMedia Commons)

Looking at Nvidia's success today as the world's third-most valuable company, you may be surprised to know that the company nearly collapsed completely in 1996 – just three years after its founding – and only generosity from a Sega executive at the time saved Nvidia from the graveyard, according to Wall Street Insights

This is particularly surprising considering that Sega itself wasn't far from bowing out of the console business– in fact this likely contributed – but it plants an early seed for Nvidia's future place in the hardware industry as a leading PC GPU provider and Nintendo's go-to SoC manufacturer.

So, how exactly did Nvidia end up getting such a reprieve from Sega? It actually stems from the history of the Sega Dreamcast, which Sega initially went to Nvidia to develop the GPU for. While Nvidia's following work in low-power GPUs may have helped the company make more power-efficient chips down the line, these low-power graphics were ultimately not up to the spec that Sega needed for the cutting-edge Dreamcast ahead of its 1998 release.

Thus, the conclusion of the Sega-Nvidia contract seemed to be doomed to failure for both parties. Nvidia had spent lots of time and money on  R&D and had nothing acceptable to show for it, which put Nvidia CEO Jensen Huang in an unenviable position. He wound up coming clean to Sega about not having their needed graphics hardware...but still asked for payment despite this.

And ultimately, Nvidia was still paid for its failed attempt at making the Dreamcast's GPU— thanks to then-CEO of Sega America, Shoichiro Irimajiri. When Huang came to Sega with the unfortunate news, he asked to still be paid in full for the contract, lest their company go out of business.

The answer picked by Irimajiri and Sega wound up being a $5 million investment into Nvidia, since Irimajiri had previously met Huang and taken a liking to him. While Irimajiri eventually stepped down from executive positions at Sega (and was briefly president of the whole company, not just the US branch), this investment was cashed out for $15 million afterward, helping keep Sega stable as the company departed the console business.

Now, one can't help but wonder. Would today's gaming and hardware be drastically different if Nvidia had actually succeeded in creating a Dreamcast-appropriate GPU? The Dreamcast's features, including online connectivity, were still very cutting-edge at the time of its release, beginning to blur the lines between gaming console and gaming PC. However, the Dreamcast's problems didn't really have anything to do with its internal hardware...so there's a non-zero chance Sega still would have exited the console business, either way.

Of course, Nvidia wound up with the $5 million it needed,  thanks in part to the power of friendship, and Sega tripled its investment in the process – but who knows? If desperation hadn't pushed Nvidia to make its first truly successful GPU following Sega's last-minute investment save, maybe Nvidia today wouldn't be recognizable at all.

Freelance News Writer
  • hotaru251
    Dreamcast was ahead of its time...which sucks because it was a really enjoyable console (I still own mine).

    If Sega would of released it around PS3's time instead of ps2's with the tech a lot more advanced (especially networking) dreamcast likely would of sold very well. VMU ( Visual Memory Unit) also was a fun little thing where you could put mini games on memory card and play em anywhere like in backseat of car while on a trip)

    Everyone will remember it for failing but only those who had one know how fun they were. (sega make another Timestalkers roguelike already)
    Reply
  • gamerk316
    hotaru251 said:
    Dreamcast was ahead of its time...which sucks because it was a really enjoyable console (I still own mine).

    If Sega would of released it around PS3's time instead of ps2's with the tech a lot more advanced (especially networking) dreamcast likely would of sold very well. VMU ( Visual Memory Unit) also was a fun little thing where you could put mini games on memory card and play em anywhere like in backseat of car while on a trip)

    Everyone will remember it for failing but only those who had one know how fun they were. (sega make another Timestalkers roguelike already)
    The Dreamcasts primary problem was SW support; Devs were just tired of the short shelf life of Sega's HW post-Genesis. For example, EA didn't support the Dreamcast (leading to the creation of 2k Sports by Sega).

    As a result, once the PS2 hit the Dreamcast was cooked. HW wise, the Dreamcast was arguably the second most powerful console of its generation (behind only the Xbox).
    Reply
  • thisisaname
    If they had not cashed out how much would that investment be worth now?
    Reply
  • ivan_vy
    gamerk316 said:
    HW wise, the Dreamcast was arguably the second most powerful console of its generation (behind only the Xbox).
    no it wasn't. DC was a mid-step into 6th generation and ended being the weakest, many of its games found their home in Xbox.
    "Moore went on to admit that the Dreamcast was ahead of its time and ultimately lost out to the PlayStation 2, but the 'baton was passed to Xbox', with SEGA also choosing to collaborate with Microsoft as a third-party publisher."
    https://www.purexbox.com/news/2021/11/the-dreamcasts-legacy-lives-on-with-xbox-says-former-sega-america-presidentXbox was the close we had to get a DreamCast2
    Reply
  • hotaru251
    thisisaname said:
    If they had not cashed out how much would that investment be worth now?
    i mean back in 2000 (as far back as i can find) nvidia stock was $2 each. today its near $950 each.

    so you'd take that $five million & multiply it by 450 so would be around two billion two hundred fifty million
    Reply
  • Math Geek
    i liked my dreamcast. still got it in a box somewhere in the garage i think.
    Reply
  • NomadEcks
    A lot of opinions here don't mention the fact that the Genesis had all the better games whereas the Dreamcast had fewer popular games and was much more expensive for not that much more graphics. This was the beginning of the height of PC gaming remember, so competition was fierce. Saying oh if they had waited until the PS3 came out is basically saying if the last buggy maker had waited until cars came out they'd have been more successful. Not that Dreamcast wasn't good it was it just wasn't good enough for the price point for us poor kids whose family was trying to pay off their $3,000 286 still.
    Reply
  • thestryker
    gamerk316 said:
    The Dreamcasts primary problem was SW support; Devs were just tired of the short shelf life of Sega's HW post-Genesis. For example, EA didn't support the Dreamcast (leading to the creation of 2k Sports by Sega).
    Right problem, wrong reason. DRM, or rather lack thereof, was the primary reason big third party developers/publishers didn't want to touch the Dreamcast.
    Reply
  • wwenze1
    thisisaname said:
    If they had not cashed out how much would that investment be worth now?
    I couldn't find the market cap for NVDA in 1996, but 1996 revenue was 4 million and 1997 was 29 million, if we take a mid point of 15 million revenue and compare that to 5 million investment in 1996, then scaling with revenue that investment would be worth 20 billion now. Or almost 7 times Sega-Sammy's current market cap.
    Reply
  • kaalus
    hotaru251 said:
    Dreamcast was ahead of its time...which sucks because it was a really enjoyable console (I still own mine).

    If Sega would of released it around PS3's time instead of ps2's with the tech a lot more advanced (especially networking) dreamcast likely would of sold very well. VMU ( Visual Memory Unit) also was a fun little thing where you could put mini games on memory card and play em anywhere like in backseat of car while on a trip)

    Everyone will remember it for failing but only those who had one know how fun they were. (sega make another Timestalkers roguelike already)
    Stopped reading at "would of".
    Reply