News & Analysis
Silicon startups get the squeeze
Rick Merritt
6/22/2009 2:52 PM EDT
The company had designed an ultrawideband chip that delivered the promised bandwidth and distance. At least three consumer electronics companies planned to design the chip in to future products. But that wasn't enough to keep the startup going.
"The problem came when we looked at the volume those customers would be shipping in 2010 and 2011--partly based on the economic downturn--the resulting revenue and margin for Tzero and the cost of running the company to make those products successful," said Rappaport, a founding investor in the company. "We said, 'hold on these equations don't solve.'"
 |
| August Capital, Partner Andy Rappaport |
With no road to profitability on the horizon, backers tried to sell the company to established chip makers or roll it up into other struggling ultrawideband startups. Ultimately the products and most of the team were sold in mid June to one of its smaller customers, NDS Surgical Imaging, for a fraction of the estimated $60 million investors had put into Tzero.
"For me it was a kind of heartbreaker because the technology was fantastic and the team performed spectacularly," said Rappaport.
The Tzero story likely will be repeated more than a hundred times over the next few years as investors slash through a decade of over-investments in semiconductor startups.
Top venture capitalists say the costs of bringing a new processor or system-on-chip to market are becoming prohibitive. It's not the end of the line for semiconductor startups, but opportunities are changing and narrowing. And raising new funds to invest in high tech companies of any kind is getting increasingly difficult.
Increasingly only the few big chip makers will be able to afford to design big SoCs, according to Rappaport. They will be smart to use open interfaces so startups still have opportunities to design accelerators for niche functions that can be integrated into those SoCs, he said.
System designers, for their part, will have to learn how to do more in software given fewer chip choices, he added.
Next: A post-fabless era?
|
|
|
|
|
Gopal Miglani
6/23/2009 10:08 PM EDT
I disagree with the numbers on software investment required to take the first 2 OEMs to market. With third-party pre-packaged software one can take OEMs to market in a fraction of the costs listed here. we have done this repeatedly for TV & STB SoC vendors.
Gopal Miglani
President, BitRouter
TV & STB Software Solutions
www.bitrouter.com
Sign in to Reply
anindya
7/1/2009 4:04 AM EDT
This story is very US centric. The author should make attempts to highlight how Indian, Chinese and other Asian startup's contribute and control their expenses to deliver products at much lower expenditure. Though the number of startups in these regions are lesser than what is in US, it is the bad habits of US startups (where the top honchos draw fat salaries or most of the expense is gone into purchasing EDA tools ) which has led to such conclusions being made by the VCs.
Sign in to Reply
Umashankar
7/1/2009 11:27 AM EDT
If this situation continues, and volume game impacts technology growth, there seems to be a danger of stagnation. With only major players doing fab will all of world's fabless COs run to them some day and queue up those fabs (what abt time-to-market) ?
In any way, time-to-market & volume play seem to be leading to a deadlock.
What can possibly ease the situation?
Sign in to Reply
rick.merritt
7/1/2009 3:31 PM EDT
Thanks for chiming in, Gopal. I'd like to hear other experiences from silicon startups and their investors...how is this squeeze impacting you?
Sign in to Reply
flemingo
8/23/2009 3:22 AM EDT
I left the US company I had worked for 5 years and went to Shanghai to start up an IC design house for years ago, with only 3 million dollars funded by a local investor in China. Now, with $15m revenu and $2.5m net earning, it attracts the attention of other VCs. Why an IC design house in China can be more likely be profitable with much less money than in America?
- pay much less for hiring smart local talents
- more close to customers because large electronics OEMs are located in China, pluse some Chinese based companies like Huawai, Hair, etc.
- Define products with better performance-to-price ratio. Customer will gradually accept local IC products rather than expensive chips from ADI, LTC, Maxim, NS, and TI.
At least, I don't have to warry about my job and 401K right now.
Sign in to Reply
UdaraW
8/3/2011 12:57 AM EDT
Looking back from 2011, the article appears to be spot on in many points. While the cross-boarder investments may survive, in the long run, most of the silicon-based start-ups have folded and the remainder will fold pretty soon.
The VC funds are rediscovering themselves, and I expect the energy and clean-tech sector to be the one absorbing the largest portion of the investor attention in the next decade. As the crude oil resources get inevitably dried-up, alternate-energy start-ups will gain momentum in the next few decades. Hopefully, most of our generation of EE will live to see the day that gasoline is no longer needed.
Sign in to Reply