Steady VC funds in fabless - Business & Finance - venture capital funding for fabless semiconductor companies declines

Electronic News, Sept 23, 2002 by Heidi Elliott

At least someone is spending money in the electronics industry--albeit frugally.

The Fabless Semiconductor Association (FSA) recently released a report on venture capital funding of fabless semiconductor companies in Q2, and while the number of deals increased sequentially, the total amount invested declined. In Q2, 35 private fabless companies raised $456.1 million, compared to 26 deals in Q1 that netted $506.4 million. April and June were the biggest months with 14 and 13 deals closed, respectively. May was a lackluster month with only eight funding deals for a total of $81.6 million invested. Year-over-year deals declined slightly in number and dollars invested.

And while the dollar amount declined sequentially, the FSA was encouraged by these figures -- the number of first-round funding venture investments improved, to 26 percent of all deals, up from 12 percent in Qi. "This surge in first-round fundings is a positive industry sign that the fabless model is extremely viable and attractive," said FSA Founder and Executive Director Jodi Shelton.

In the second edition of its quarterly publication, Eric Ross, director of electronics research and lead semiconductor analyst at Investec, said that most fabless companies were able to weather the downturn simply because they were fabless.

Semiconductor companies are more attractive investments because they don't require as much capital as a systems manufacturer, said Irwin Federman, general partner at U.S. Venture Partners (USVP). Semiconductor companies need only semiconductor expertise, while systems companies need that, plus software expertise, systems expertise, a lengthy testing process, and more.

And, for the most part, what venture capitalists look for in a potential investment has remained the same during the downturn. Federman said he looks for a market he can understand; a company that has a push- product not a pull- approach; company executives that understand the technology and company executives that understand their market -- though the current market is a bit difficult to call.

The Money Trail

Venture capital investments in the fabless semiconductor industry
(in millions)

               Q202     Q102     Q201     Q101     Q200     Q100

$ Amount    $456.1M  $506.4M  $468.1M  $954.8M  $767.7M  $154.1M
# of Deals       35       26       38       52       45       26

SOURCE: FABLESS SEMICONDUCTOR ASSOCIATION
Big Deal

Top Five Fabless VC funding deals in Q2

Co. funded      Amt.($M)  Investors

Portal Player   $42M      J.P. Morgan Partners, Investcorp
                          International, Shamrock Capital
                          Advisors, CIBC World Markets, Linear
                          Technology Corp., LSI Logic Corp.,
                          the Band of Angel Fund, Thomas
                          Spiegel, Portal Partners

Magis Networks  $40M      AOE Time Warner Ventures, Hitachi,
                          Motorola, Panasonic, SANYO, Paul
                          Allen's Vulcan Inc., Bay Partners,
                          Crescendo Ventures, WK Technology
                          Fund, China Develop. Industrial Bank

T-Ram           $35M      New Enterprise Associates, Mayfield,
                          US Venture Partners, Tallwood
                          Venture Capital

QuickSilver     $25M      N/A
Technology

Inphi           $24M      Walden International Venture
                          Partners, Dali-Hook Partners,
                          Newlight Associates, Parker Price
                          Venture Capital, Wasserstein Ventures

SOURCE: FABLESS SEMICONDUCTOR ASSOCIATION