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iniewski
thank you Paul for an interesting perspective...we are organizing a panel on ...
C.PaulSlaby
First of all, I would like to applaud the initiative of finding new sources of ...
In search of new chip startup funding models
Dylan McGrath
12/6/2011 8:09 PM EST
We've heard it so many times, by now it sounds like a broken record: venture capitalists, long the lifeblood nurturing a thriving community of semiconductor startups, have all but abandoned the chip industry, turning instead to social media and green energy technologies, where the common wisdom is a smaller investment can go a lot further.
We've heard many times, too, that its hard to blame them. The fact of the matter is that bringing a chip to market, even for a fabless company, has become an ultra-expensive proposition requiring on the order of $30 million or more. And we've also heard plenty about what a dangerous situation this is for the semiconductor industry, which has practically since it began depended on the innovation brought by small start ups to thrive.
What we haven't heard much about is what, if anything, can be done about that.
But for about year a working group within the Global Semiconductor Alliance organization has been quietly meeting to discuss this topic, gradually putting momentum around a proposal to develop a $100 million angel fund with a VC fund legal structure to invest strictly in semiconductor firms.
"I think it's really starting to gain some steam with people in the industry," said Ralph Schmitt, chairman of the GSA's Emerging Company CEO Council. Schmitt, who is also president and CEO of chip maker PLX Technology Inc., said the council's Capital Lite Working Group meets once a month and that attendance at these meetings has been growing exponentially.
The group's stated mission is to develop, promote and execute alternative investment models that can be used by chip startups to innovate and prosper. The hope is to get support from a consortium of firms through the entire semiconductor ecosystem.
"Fundamentally, the model has to change," Schmitt said. "The guys that need this innovation need to get more involved. Frankly, the VCs need to take a bit of a back seat."
The fund that the group is trying to develop would be supported by large and mid-sized chip companies, suppliers and service partners. The fund would only invest in startups that have the "sponsorship" of a strategic investor or OEM and would limit its exposure to less than $10 million per company. The startups the fund supports would be modeled to be acquired by their strategic sponsor or another firm.
"We are very much focused on tangible results," Schmitt said. He said the group believes it should be able to get between one and three new startups funded within the next six months in its initial foray.
One way Schmitt envisions greasing the wheels of innovation is by providing startups with a tool kit of resources from the supporting companies to try to minimize the costs of the startups.
Schmitt estimates that only about half a dozen VC firms are still involved in funding chip companies, including Tallwood Venture Capital, Walden International and U.S. Venture Partners, all of which have been involved with the Capital Lite Working Group. Schmitt is one of many people in the semiconductor industry that believes the glory days of depending on VCs to incubate chip companies are gone forever.
Of course, many chip companies already make strategic investments in a number of firms. The notable deep-pocketed example of this in Intel Corp., which maintains its own venture capital arm to back firms from the semiconductor industry and, increasingly, beyond. Schmitt said the Capital Lite Working Group is in the early stages of trying to get Intel involved with the program.
Schmitt acknowledges that there is no guarantee that the working group will directly benefit his firm or any of the others involved. But he and others believe that a bubbling pool of startup activity and innovation is crucial to the long-term health of the semiconductor industry.
"This industry has always historically banded together when there are model changes," Schmitt said, noting that when the fabless chip firm model emerged, companies banded together to pool resources through organizations like the GSA (originally known as the Fabless Semiconductor Association.
The jury is out on whether the Capital Lite Working Group can pull together the fund and whether it will create a sustainable model that can support chip startup innovation going forward. But it's a critical issue that is on a lot of people's minds, and it's nice to see someone is at least talking about a solution.
For more information, please see the VC Watch section of the November issue of EE Times Confidential.
We've heard many times, too, that its hard to blame them. The fact of the matter is that bringing a chip to market, even for a fabless company, has become an ultra-expensive proposition requiring on the order of $30 million or more. And we've also heard plenty about what a dangerous situation this is for the semiconductor industry, which has practically since it began depended on the innovation brought by small start ups to thrive.
What we haven't heard much about is what, if anything, can be done about that.
But for about year a working group within the Global Semiconductor Alliance organization has been quietly meeting to discuss this topic, gradually putting momentum around a proposal to develop a $100 million angel fund with a VC fund legal structure to invest strictly in semiconductor firms.
"I think it's really starting to gain some steam with people in the industry," said Ralph Schmitt, chairman of the GSA's Emerging Company CEO Council. Schmitt, who is also president and CEO of chip maker PLX Technology Inc., said the council's Capital Lite Working Group meets once a month and that attendance at these meetings has been growing exponentially. The group's stated mission is to develop, promote and execute alternative investment models that can be used by chip startups to innovate and prosper. The hope is to get support from a consortium of firms through the entire semiconductor ecosystem.
"Fundamentally, the model has to change," Schmitt said. "The guys that need this innovation need to get more involved. Frankly, the VCs need to take a bit of a back seat."
The fund that the group is trying to develop would be supported by large and mid-sized chip companies, suppliers and service partners. The fund would only invest in startups that have the "sponsorship" of a strategic investor or OEM and would limit its exposure to less than $10 million per company. The startups the fund supports would be modeled to be acquired by their strategic sponsor or another firm.
"We are very much focused on tangible results," Schmitt said. He said the group believes it should be able to get between one and three new startups funded within the next six months in its initial foray.
One way Schmitt envisions greasing the wheels of innovation is by providing startups with a tool kit of resources from the supporting companies to try to minimize the costs of the startups.
Schmitt estimates that only about half a dozen VC firms are still involved in funding chip companies, including Tallwood Venture Capital, Walden International and U.S. Venture Partners, all of which have been involved with the Capital Lite Working Group. Schmitt is one of many people in the semiconductor industry that believes the glory days of depending on VCs to incubate chip companies are gone forever.
Of course, many chip companies already make strategic investments in a number of firms. The notable deep-pocketed example of this in Intel Corp., which maintains its own venture capital arm to back firms from the semiconductor industry and, increasingly, beyond. Schmitt said the Capital Lite Working Group is in the early stages of trying to get Intel involved with the program.
Schmitt acknowledges that there is no guarantee that the working group will directly benefit his firm or any of the others involved. But he and others believe that a bubbling pool of startup activity and innovation is crucial to the long-term health of the semiconductor industry.
"This industry has always historically banded together when there are model changes," Schmitt said, noting that when the fabless chip firm model emerged, companies banded together to pool resources through organizations like the GSA (originally known as the Fabless Semiconductor Association.
The jury is out on whether the Capital Lite Working Group can pull together the fund and whether it will create a sustainable model that can support chip startup innovation going forward. But it's a critical issue that is on a lot of people's minds, and it's nice to see someone is at least talking about a solution.
For more information, please see the VC Watch section of the November issue of EE Times Confidential.
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iniewski
12/6/2011 8:26 PM EST
Interesting idea, the proof of the pudding is in the eating though...Kris
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Frank Eory
12/6/2011 9:25 PM EST
Bringing a new chip to market supposedly costs on the order of $100M, but this angel fund will limit their max investment in a single company to only $10M?
Actually, I think the $100M figure is highly overstated for most new chips -- especially for the types of chips a fabless startup is most likely developing.
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dylan.mcgrath
12/6/2011 9:31 PM EST
I think you are right as usual Frank. I'm going to look for a better number.
But even so, the number is higher than $10 million and that is the limit of the fund. So it's certainly not going to get you all the way there. I believe that the conditions of getting funding require that the "sponsor" strategic investor match what the fund puts in. Still, startups that get funded will probably need other funding from different sources. Part of the effort is also trying to bring down the costs for startups. This may be only the beginning, but it's a start.
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iniewski
12/6/2011 9:37 PM EST
It all depends what you are trying to build...if you are trying to design a revolutionary new FPGA (like Tabula) you probably need $100M...but if this is a small and smart mixed-signal IC $1M could be sufficient, I know many examples first hand...getting $10M would get you started almost on anything, I am sure ARM started with less...Kris
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elPresidente
12/9/2011 1:34 PM EST
You can't develop an FPGA for $1M
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iniewski
12/9/2011 1:55 PM EST
I wrote small mixed-signal IC not an FPGA...can be done on $1M
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dylan.mcgrath
12/6/2011 9:46 PM EST
Good point Kris. Thanks for weighing in. I did find a number that the GSA circulated of $30 million or more. But as you say, it's highly dependent on your product, to be sure.
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goafrit
12/6/2011 10:50 PM EST
Interesting - but I think this will not work out. None of the angels will intentionally put themselves in this brutal and unforgiving sector. Our field has become stymied because our innovation is no more fluidic. It will take a lot of new ideas to compete with the clones Chinese are making today. It is a tough business people because China has found a way to devalue anything you make.
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eewiz
12/7/2011 1:54 AM EST
Good Intention, bad solution. 100m$ angel fund is like is cup of water for a man dying in a desert. it will finish of fast as Frank said. what should be done is lower the costs by negotiating with fabs and eda companies to support a startup model.
ie. SYN/CDN/MENTOR should give access to semi startups at very affordable prices. For giving this they can add contractual terms like buying the EDA company software at full price when the company becomes succesful. Or they can take a small stake in the startup and give free tools, sort of a mini VC role by the EDA companies. Or atleast they should software-as-service model for startups.
Same thing with the foundries. Negotiate with the foundries for lower costs for startups, on condition that the startups will continue with the same foundry when they becomes successful. Again, startups can trade a small stake in the company to foundries in-return for low prices.
All these things are theoretically possible even now, but having an official forum and a pre-negotiated agreements with a range of prices/equity will help the startups.
A suggestion to startups is to focus on niche markets with low competition, where older process also may be enough to demonstrate ver 1,2 of the products. "Primesense" who made the 3d camera chips for XBOX kinect is a good eg.
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david.tester1
12/7/2011 7:42 AM EST
Rise in costs for a semi start-up is dominated by the combination of increased product complexity and the number of people needed for development.
Only changing the biz model to reflect this change will decrease these two factors and reduce the funding needed to go from idea to profit.
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vaapb
12/8/2011 5:09 PM EST
+1.
EDA tooling costs are prohibitively expensive and present a barrier to entry that just doesn't make sense. It is a barrier that this industry can do without - if it has a prayer of reviving here in Silicon Valley.
It always saddens me to see ivy league EE/EC grads get into web programming - after all that hard work in earning their degree; what a waste. I suspect that is the case because access to good EDA tools is simply beyond their budget for experimenting in a serious way.
One reason the web start-up companies really took off is because of the hosted model and plenty of inexpensive/free tools.
A better idea would be to invest all that money into building a cloud with the best of EDA tools and processes and make it affordable and accessible.
This will allow designers/entrepreneurs with great ideas and passion focus on what they do best without having to worry about EDA companies eating their lunch money even before they get started.
I understand that EDA companies also have to make money to survive. But their current pricing models I believe is doing more to kill their own ecosystem instead of growing it.
If I had a billion dollars I would just buy the software from these companies and opensource their software - like what Google did with ON2 codec.
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dylan.mcgrath
12/9/2011 1:41 PM EST
@eewiz- I like the idea of EDA vendors and foundries throwing skin in the game by providing reduced cost tools and wafers to startups with the agreement that they will pay higher prices when they reach a certain threshold. It's important that they ensure a steady stream of new customers, and nurturing promising startups is a way to do that. Perhaps some of the smaller EDA vendors and foundries will get the ball rolling on this as a way to get their foot in the door at what could be big customers down the road.
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iniewski
12/7/2011 9:31 AM EST
David: One idea that many start-up try to follow is to design some IP blocks not the whole chip. That gos toward smaller complexity and number of people required. The problem is that you still have validate that IP thru silicon fabrication...Kris
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DrewChildress
12/7/2011 10:58 AM EST
In general to design a moderate complexity FPGA and put it on a board for prototyping you will need a half dozen or more very talented engineers for a couple of years. Of course that time and man power estimate can scale quickly if you are getting into custom IP. Tools, test equipment and space add to the expense.
To me the bigger problem is once you get an FPGA prototype then you need to convert to ASIC which takes 6 to 9 months conservatively.
Now after ~2.5 years you have your new wonder chip that you need to get OEMs to design in. The product life cycle from design-in to production for consumer electronics can run from 18 months to 36 months or more.
Now your new OEM partner with your chip in their product has to go sell it to their customers. They may have field trials, further certification, documentation and support teams. And most importantly market acceptance.
So from idea to end product you are talking 4+ years and that is if everything goes well. This is the funding problem.
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jederrick
12/7/2011 3:31 PM EST
Markets and opportunities appropriate for startups or even small cap companies have changed - driven by the onward development technology.
There are still semiconductor related opportunities, but great company ideas are not as common as people would like to believe. It requires a very compelling product offering, accessible market, and strong team to succeed at any startup. I've personally started and profitably sold multiple companies and currently advise and serve on the board of others including a semiconductor company.
Apparently the "obvious" semiconductor opportunities are very capital intensive, but in my opinion the real opportunity for startups are in special purpose devices (mixed signal, RF, exotic uses) and use of enabling technologies to implement higher level value to the market.
Few, if any, company that raises and spends $100M while private is going to generate a reasonable return to the investors. It just does not make sense to do so when troubled, but revenue generating companies can be acquired for far less and repurposed for turnaround and growth.
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iniewski
12/8/2011 5:18 PM EST
@vaapb, many good points...I belive EDA companies are trying to address the issues you brought up, I know from personal experience a start-up company that was paying little, if anything, in their first year of IC design...the start-up eventually went belly up so the EDA company in quetsion likely lost the money on that "sale"...
There is a difference between web and silicon start-ups, number of them! We can't really expect millions of silicon start-ups wordwide, that would not be good either...
In the context of this GSA initiative a useful suggestion might be to use some funds to lease EDA tools for start-up purposes...Kris
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elPresidente
12/9/2011 1:44 PM EST
The $30M is a good number to use Dylan - not everyone needs 15nm CMOS nodes.We spent a year on Sandhill Rd pitching our semiconductor startup to deaf ears. The VCs were either on planes to/from China, or investing in stupid, yet "capital efficient", website ideas that had no commercialization plan apart from "advertising" (they all want to be Google).
The requirement of having a customer in this semiconductor funding appears to be a way for the established "investor" companies to have their marketing done for them - I doubt they are serious about seeing a startup go to IPO, or even to enable a competitor. Their marketers are clueless, and this is a way for them to get market/customer/strategic insight for less than $10M, nothing more.
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DrewChildress
12/9/2011 1:47 PM EST
Software isn't cheap but hardware tools can cost tens of thousands a month to rent or a few hundred grand to buy. Go price out a good logic analyzer, waveform generator, Ghz scope, programmable power supplies etc., outfitting a lab is not for the faint of pocketbook.
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dylan.mcgrath
12/9/2011 1:49 PM EST
Here's a fresh data point for this discussion. Programmable logic startup SiliconBlue was by many measures a pretty successful startup, claiming a number of design wins under the belt. On Friday (Dec. 9) it was acquired by Lattice Semiconductor for $62 million. Not bad, but the company had taken at least $57 million in VC funding. SiliconBlue had customers and was generating revenue, though I do not believe that the company was profitable. So who knows exactly how much return the VCs got on their investment. But on its face, looking at the numbers, it seems hard to blame VCs for believing their money would have gone farther elsewhere.
http://www.eetimes.com/electronics-news/4231248/Lattice-to-buy-SiliconBlue
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adapteva
12/9/2011 2:54 PM EST
The SiliconBlue acquisition is a really interesting data point and shows why the business model no longer works for VCs. Ten years ago, a company like Silicon Blue might have been acquired for $600M. To get more startups funded, the tier-1 semis need to learn how to invest properly in startups or start paying more on exits to get the VCs back in the game. If they do neither, the whole industry will stagnate.
Note, it's still possible to get to break even with $2M, but then you need a customer up front and a very focused product:
http://www.eetimes.com/electronics-news/4228829/Debunking-the-myth-of-the--100M-ASIC
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Simon7382
12/10/2011 5:02 AM EST
There is a fundamental flaw in this concept: "The startups the fund supports would be modeled to be acquired by their strategic sponsor or another firm."
No engineer/entrepreneur worth his salt would start a company and go through the grueling initial years to be acquired. The engineers who created the value of the start-up rarely if ever make money on an acquisition. Hence, for all start-ups that I knew and have been involved with plan A was going public. Only plan B was acquisition, if all else fails. I would never back any start-up with my work or my money which sets the goal to be acquired when it is started/funded.
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DynamicLogic.US
12/10/2011 10:01 PM EST
Here's a cost reduced solution: ZYNQ: XILINX Artix7 or Kintex7 28nm FPGA + dual ARM A9's on a chip. As its ecosystem builds out additional software, fpga images and tools, the cost savings for innovation on a standardized and highly capable platform will be significant.
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jasiojasiojasio
12/11/2011 9:17 PM EST
Thank you goafrit.
I do not fully comprehend so small manufacturing cost as sources from design are quoting often.
To me cost of verification and especially first silicon debug (test involved) are 40% of cost of development cycle. Quoted 35% on 90 nm.
First silicon debug is practically manual process. Start from clock verification. That requires so called Instruments On a Chip permitting to reach deep into interior of a chip. Next they say broken scan chains are 30% of scan failures.
There are conceivable non-contact wafer level methods to reach inside chip (those are internal test points) which may help to access these things with pretty good bandwidth, extremely small real estate on chip, power draw.
This is to me something, if real, very important.
Lately I followed one start-up and they swayed themselves from non-contact test to protecting environment venture. Anyone knows why ?. RF communication between tester and device (die on wafer) under test has flows. Looked perfect to me. I do not believe they consumed more than 10 millions.
Anyone knows real numbers behind wafer level first silicon debug ?. Thanks
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C.PaulSlaby
12/13/2011 2:40 PM EST
First of all, I would like to applaud the initiative of finding new sources of funding semiconductor startups. Clearly this industry is facing issues and new solutions are needed. As part of the lively discussion provoked by Dylan McGrath's article, I would like to make a few points.
1. After a good ~ 50 years long run, the semiconductor is maturing (not unlike what happened to the automotive industry). The days of mushrooming semi startups nourished by the multi-million dollars investments from the burgeoning VC firms are gone - get over it! The business has changed and those days are not going to come back. It is a different world now and no amount of nostalgia is going to change that.
2. The old business model of fabless semiconductor companies is dead, for all practical purposes, when it comes to startups and emerging companies (see this presentation: http://www.design-reuse.com/exclusive/kaben/) There is a need for new approaches which have a chance to bring significant ROI justifying investments.
3. Just because the old ways of doing business are no longer applicable, this does not mean there is no need or demand for semiconductor startups and their innovation - quite contrary! But the way we go about it has to be different. To avoid repeating myself, I refer you to this article: http://www.eetimes.com/electronics-news/4074052/Letter-to-the-editor-IP-cars-share-common-ground
"Times they are a-changing" and the GSA's Emerging Company Council's initiative spearheaded by Ralph Schmitt is a welcomed effort which might help to breathe new life into the world of emerging semiconductor startups.
C Paul Slaby, Yariba Tech
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iniewski
12/14/2011 12:50 AM EST
thank you Paul for an interesting perspective...we are organizing a panel on this topic at CMOS Emerging Technologies conference in Vancouver in 2012 (details at www.cmoset.com), would you be interested in participating on the panel?...we will also be interested in having someone from EE Times and GSA...kris.iniewski@gmail.com
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