On the way up: VC funding increases in 3Q01

By Rachel Robinson

WaferNews Associate Editor

It’s nice to see some encouraging news for a change, especially within the semiconductor investment community. Venture capital funding dollars rose from 2Q01 to 3Q01, according to PricewaterhouseCoopers MoneyTree Survey, conducted in partnership with VentureOne.

With nine chip-related companies still uncounted because numbers are not yet available, the semiconductor industry was awarded some $433 million in VC funding in 3Q01, compared to $429.1 million in 2Q01, but that is not the final tally.

According to Raman Chitkara, global managing partner of the semiconductor industry group at PricewaterhouseCoopers, the 3Q01 numbers reflect a strong quarter for the chip sector. “It clearly shows the resiliency of the semiconductor sector,” he told WaferNews.

As a percentage, chip companies received 6.7% of all funding dollars awarded. That is very significant, noted Chitkara, as traditionally the semiconductor industry receives about 5% of total dollars awarded. Chitkara explained that when the market gets difficult, investors tend to feel more confident putting money into established sectors.

“That speaks volumes about the market, and how it filters back to basic fundamentals, which are proven business models,” he said.

According to the survey, 44 semi-industry companies received funding in 3Q01, up 26% from 35 deals in 2Q. Chitkara pointed out that of those 44 companies, 64% were early stage investments, where as last quarter, 47% received early stage money. “That shows reinforcement of faith [in the semiconductor industry],” Chitkara told WaferNews. “They’re not pouring money into existing investments.”

Of the 44 semiconductor companies that received funding in 3Q01, 26 provide application specific ICs, four provide general purpose ICs, and 14 are in IC production. While it’s usually chipmakers and chip design companies that tend to get the funding, a few equipment companies appeared on the list for 3Q.

Torrex Equipment, Livermore, CA, a semiconductor toolmaker, received $10.3 million in early stage funding during 3Q01. The company’s FlexStar LPCVD (low pressure chemical vapor deposition) system uses parallel wafer-processing technology that combines the benefits of single wafer and batch processing – high quality films, fast cycle time, and low CoO. The company is working with 10 global customers, and is demonstrating six different applications, according to Julio Guardado, CEO of Torrex.

The $433 million in funding was split into 44 separate transactions averaging just under $10 million a piece. A majority of the money ($257 million) went to companies in Silicon Valley. The next closest region, in terms of funding, was Los Angeles, CA/Orange County, which received $57 million.

Looking beyond semiconductors, which have enjoyed growth, the overall investment totals have dropped significantly over the last few quarters. Just over 24% of all investment dollars went to the communications and networking sector, which received nearly $1.6 billion in 3Q01. That is 11% below the $1.8 billion that the comm sector received in 2Q01, and a mere half of the $3.1 billion the industry received in 1Q01. The software sector came in second, acquiring $1.1 billion, which is 35% below 2Q01’s $1.7 billion, and 48% below 1Q01’s $2.1 billion. The consumer and business services sector came in third, taking in $632 million in 3Q01.

“In summary,” Chitkara told WaferNews, “3Q01 was another strong quarter for the semiconductor sector.” However, he does believe that the numbers will go down in 4Q01. “But, I could be surprised,” he acknowledged.

Chitkara said that the events of Sept. 11 caused the delay in funding for several companies. He commented that he knew of companies that were in the middle of raising money, but were told to pause and wait for six months. “4Q will show signs of that delay, but in 1Q02, there could be an uptick.”



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