Analysis: strategic versus ROI-driven VC

LONDON — We knew this was going to be a tough year for many startups. Venture capitalists needed to eke their money out. It is natural they would be withholding it from some because of the uncertainty that the global economic crisis had brought and the delay it introduced into the growth of various markets.

It happened before in the post dot.com crash and, as it was then, it is less about the technology, or the market as much as the timing. However, good the technology it you were at the wrong part of the cycle you could get dropped. "It's not you, it's me," we could hear the venture capitalists saying as they declined to invest more money in a pet startup. We even had Moshe Gavrielov, president and CEO of Xilinx Inc. (San Jose, Calif.) predicting that venture capitalist would never return to the semiconductor domain, and particularly the fabless semiconductor market.

Well venture capital activity has continued during 2009 but perhaps the latest funding for Arteris Inc. (San Jose, Calif.) illustrates a point. Arteris, a supplier of network-on-chip IP has raised nearly, but not quite, $10 million in a Series D round of equity financing. This is money that Arteris probably needs as its last funding round was in May 2008 when it only pocketed $7.5 million. The latest funding brings Arteris' total raised to about $35 million.

Now Arteris, founded in Paris in 2003, has an intellectual property and design tools business model and therefore needs less cash than a fabless chip company. Nonetheless what is noticeable about these last two funding rounds were both led by industry players with strategic interests rather pure-play ROI-driven venture capital firms.

In 2008 it was Docomo Capital, which is connected through its parent to the Japanese wireless handset builders and their silicon suppliers. Similarly, in 2009 Qualcomm and ARM have strategic and technical reasons for not wanting to see Arteris go down. Of course the original VCs Synopsys, Crescendo, TVM Capital and Ventech joined the round and continued to back Arteris, but it is intriguing that they let Qualcomm Ventures Europe, step up to the plate to lead the latest round.

Such "strategic" investments are likely to be the way that a number of startups will get funded to see them through to what will hopefully be sunny uplands in 2010. As the pure-play VCs have taken more of a back seat we have seen the likes of Intel Capital and others to continue to invest their principal's wealth in the semiconductor industry.