Investors are still looking for differentiated technologies that solve high-value problems in semiconductor manufacturing, or that bring semiconductor technology to disruptive applications in other fields, particularly in the medical and environmental sectors, said the leading venture capitalists gathered at the Silicon Innovation Forum at SEMICON West 2014.

 

“As financial investors have moved to fund more ‘flapping bird’ apps instead of hardware, strategic investors have moved more to early-stage hardware opportunities,” noted Robert Maire, president, Semiconductor Advisors.

 

Tallwood Ventures general partner George Pavlov concurred that his financial investment firm was making fewer hardware investments because the technology is maturing and there are fewer opportunities, as well as the lower margins and lower exit prices. “The app maker gets $1 a shot, which is more than the chip maker,” another VC put it more bluntly. That means that semiconductor investments need creative strategies to reduce risk, such as one recent deal that involved three strategic investors all interested in helping the startup succeed, including a customer and a supplier. “It’s also important to have a capitalist at the table to assure that the company’s interest comes first,” Pavlov noted, which may involve making the difficult moves like rebalancing leadership teams or reconstituting the Board of Directors.  Financial investors can also come in early with an experienced team that can help a company find the right strategic partners they need and introduce them.

 

Strategic investors are getting more involved with early-stage companies to reduce risk even if it means collaborating with the competition. “More and more we are collaborating in investments, and we will see more in the future, in both big and small companies, depending on the size of the problem, when fundamental industry interests are aligned,” said Sean Doyle, director, Intel Capital. “We see greater pull from financial investors to have strategic investors involved from the beginning.” More handholding is needed even before investment. Kurt Petersen, a member of the Band of Angels, noted that three of the group’s members spent two years mentoring a company before it was ready even for angel investment. In fact, a MEMS company may need a strategic investor to even convince a foundry to take it on.

 

“More than half the investments we’ve made in the last year have been with other strategic investors,” concurred Eileen Tanghal, general manager of Applied Ventures, adding that investing with Intel and Samsung for customer input was especially useful.

 

Semiconductor startups to watch: The VCs’ current favorites

 

So where are these investors putting their money in the semiconductor sector these days?  Primarily it’s either towards technologies with potential to solve next-generation semiconductor manufacturing challenges, or towards extending conventional semiconductor technology to new fields, from medicine to agriculture. The strategic investors from the venture arms of Samsung, Intel and Applied Materials all cited innovative materials solutions as the investments about which they were currently most excited, particularly Inpria for its high-resolution metal oxide photoresists, SBA Materials for its liquid-phase self assembled porous ultra low-k dielectrics, and Voltaix (recently acquired by Air Liquide) for its unique precursor gases for germanium and other chemistries. “We’re making more investments in equipment and materials because it is becoming incredibly difficult to advance the technology,” said Dong-Su Kim, senior director, Samsung Ventures Investment Corp.

 

The VCs saw a wider range of investment opportunities in applying silicon technology to other fields, especially if time-to-market and development costs can be reduced by re-using existing technology.  Peter Moran, general partner, DCM, cited RayVio as a good example, making high power UV LEDs specifically for sterilizing surfaces, with both cost and performance that have no competition from traditional wet or heat methods.  Another of his favorites is battery maker Enovix, which leverages  existing thin-film photovoltaics technology and invovates the battery structure itself for a battery that could potentially store 3X the charge per area. The financial VC worked with strategic investor  Cypress who brought specific manufacturing and scaling expertise from its Sunpower experience, while Intel brought its experience in identifying where, globally, was best to build the manufacturing plant.  Moran also noted that DCM previously did not consider devices that sold for less than a dollar, but it is now looking at lower cost devices as long as they are differentiated and high volume, such as ingestible sensors that track if people have taken their pills.

 

“The most opportunity is in proliferating silicon technology into other fields, especially in the medical field,” concurred Tanghal, citing Applied Venture’s investments in Oncoscope’s optical screening for pre-cancerous cells to significantly improve the accuracy of biopsies compared to the usual random sampling, Twist Bioscience’s platform for large-scale synthetic gene manufacturing, and  MTPV Power Corp.’s chips that convert heat to electricity.  Applied Ventures is also looking at ongoing opportunities for capturing more value from the inflection point of the emerging Internet of Things, such as supplying the materials for, or the service of, making implantable or ingestible coatings.

 

The MEMS field continues to come up with new kinds of electromechanical structures for new tasks.  Peterson said he was particularly excited about Chirp Microsystems for its ultrasonic gesture recognition, Next Input with its force-sensitive touch screen technology, and Lumedyne Technologies for its completely new, high accuracy, inertial sensor approach.