News & Analysis
Silicon startups get the squeeze
Rick Merritt
6/22/2009 2:52 PM EDT
With a few quick back-of-the-napkin calculations, Rappaport estimates there may be 100 chip startups created over the last decade that investors will need to fold. "The VC industry is going through a period of indigestion," he said.
"There's been more competition for good people and business than there should have been and too much duplication of effort--a lot of that will get washed through the system," he added.
"I wouldn't quibble with Andy's number" of 100 too many chip startups, said Stevens of Sequoia. "It might be 50 or 150, but he's not off by more than that," he said.
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| Walden International, Chairman Lip-Bu Tan |
Lip-Bu Tan of Walden disagreed. "There are a lot more than 100," he said.
Tan notes that VCs funded a whopping 2,200 companies in the first nine years of this decade, many of them silicon wannabes that will have to be folded.
The likely results over the next three years: Big chip makers will refocus on internal R&D instead of buying their next-generation chips and teams from startups. VCs will concentrate on a smaller number of better chip startups. Talented engineers will migrate to greener pastures.
"Many are going into clean tech and solar companies," said Stevens.
VCs also faces a shakeout, said Rappaport. The 8-10 year contracts signed with limited investment partners back in the twilight of the dotcom boom are coming up for renewal. Or not.
"We've grown to a multiple of what we should be," Rappaport said of the venture sector. "Now the money is drying up suddenly [and] it will be a little bit hard over next ten years to raise funds [until the] numbers come back into balance [so] the number of VC firms and their sizes will decline," he said.
"I think you'll see a lot of change in the VC sector in the next 2-3 years," said Stevens. "You will see some VC funds break up and others that can't raise money due to poor performance," he added.
Next: Next stop, Guam?
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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
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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.
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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?
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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?
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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.
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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.
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