Semiconductor startup funding fell in 2009, says Gartner

LONDON — Semiconductor startups have attracted more than $750 million in 2008 and the first ten months of 2009 but whereas about $590 million was raised in 2008, less than $200 million was raised in the first ten months of 2009, according to Gartner analysts.

In addition pure-play venture capital firms are tending to avoid investing in seed and Series A rounds, with the result that chip startups have dried up in 2009, the analysts said. Strategic investors, such as the venture capital arms of semiconductor companies were participants in about 25 percent of the investments tracked by Gartner.

In 2008 the funding was $593.26 million. In 2009 up until mid-November, the funding was just $164.05 million.

The funding figures are estimates based on the funding received by the companies tracked by Gartner. It excludes funding not publicly announced, but nonetheless should provide a sufficiently large sample as to capture the trend. The investment sums ranged up to $40 million and averaged $14.3 million per company.

Venture capital companies have favored later-stage companies in the last year and as a result the number of companies getting founded has fallen significantly compared with previous years, Gartner said. Indeed, compared with the first half of this decade very few startups have been formed in the last three years.

Nonetheless about 70 percent of those receiving investment are fabless chip companies and within those, investment in wired and wireless communications remains common along with power management chips, according to Gartner. EDA startups represented 14 percent, and IP companies made up 7 percent of the numbers. Electronic equipment for the semiconductor industry was 5 percent and 4 percent was other, according to Gartner.

"Approximately 25 percent of investments include funding from larger semiconductor vendors or OEMs. We can assume these investment transactions target strategic technologies of interest to the larger company," analysts Jim Tully and Marielena Oppenheimer said in a note.

"We do seem to be going through a VC winter," Tully said to EE Times. "Looking forward we expect to see an upturn in the number of startups, but not a big upturn. From a funding perspective we expect to see fewer, but bigger deals. We also expect a continued shift away from early stage startup funding towards funding of more established companies that have proven value. At the same time we are expecting to see more semiconductor vendors and OEMs investing in these companies as a strategic investment in key technologies — with the option of acquiring the companies at a later date," Tully added.

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