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Chip start-ups get the squeeze

Posted: 24 Jun 2009     Print Version  Bookmark and Share

Keywords:Tzero Technologies  ultrawideband  SoC 

Venture capitalist Andy Rappaport still remembers the telephone conference call when it became clear semiconductor start-up Tzero Technologies was not going to make it.

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 start-up 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.'"

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 start-ups. 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 Rs.293.92 crore ($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 start-ups.

Top venture capitalists say the costs of bringing a new processor or system-on-chip (SoC) to market are becoming prohibitive. It's not the end of the line for semiconductor start-ups, but opportunities are changing and narrowing. And raising new funds to invest in high tech companies of any kind is getting increasingly difficult.

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Andy Rappaport, August Capital, Partner
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