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VCs puzzled over future investments

Posted: 22 Apr 2009     Print Version  Bookmark and Share

Keywords:venture capital  cleantech  fabless start-up  EDA 

There have been two major chip market collapses in the current decade that have delayed returns for VCs, observed Lingjaerde: "If you got funding in 1999 or 2000, you got hit in 2002 and 2003, [and] if you did not get out in 2005, 2006 or 2007, you are now back in the tunnel," with few discernible exits for VCs to get their money out.

Return on investment may be stretched, but that does not mean it's broken, said Lingjaerde. "It's true that VCs are now raising late-stage, or growth, funds. Others are changing from early stage to late stage, leaving a gap in the early stage.

"The fourth quarter is going to be critical. As we go into next year, there will be a lot of start-ups that cannot be supported." But that will present merger and acquisition opportunities.

Fabless start-up model
There is also a big difference between Europe and the United States, Lingjaerde said. The well-funded digital fabless start-up model has been very popular in the U.S. In Europe, meanwhile, engineers are accustomed to doing more with less, and they have expertise in complementary areas to digital, such as analogue, RF and MEMS. "The U.S. difference is the amount of money a company receives. They get between three and five times as much money to do the same thing," said Lingjaerde. "The U.S. has a lot of money to bet with, and it prefers to bet big. So you can expect a large reduction in funding in the U.S. and a smaller amount in Europe."

Said Pete Magowan, a partner with London-based VC firm Alta Berkeley: "It's pretty tough at the moment. Europe's deal level is down something like 60 per cent, and the lack of M&A action or exits is impacting the flow of cash back in."

As a result, Magowan said, some funds will take their best shot at picking the winners in their portfolio and let the rest go down. "Artimi was getting design wins in UWB but still merged with Staccato Communications. Also, the . . . wireless area does not look as good as it used to. You can spend less money and get to revenue quicker in other areas."

EDA is not well starred, according to Magowan, but cleantech is. Thus, semiconductor technology that has an energy or environmental angle is receiving investment in preference to semiconductor technology with only an information technology or communications angle. "There is the obvious photovoltaics angle, but there is a sense that [field] has become crowded. But Nujira Ltd. is an example of a company with an energy-conscious approach to power amplifiers that is benefitting from the interest in cleantech."

Nujira (Cambridge, England) recently announced it had raised funding of an undisclosed level from Mitsubishi UFJ Capital. Nujira said at the time that three Japanese OEMs were designing its power-efficient Coolteq RF modules into wireless infrastructure systems.

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