Money from a quiet source: Toolmakers

By Rachel Robinson
WaferNews Associate Editor

If you look behind the scenes at capital investments for semiconductor equipment companies, you’ll likely find money coming from another source besides venture capital agencies – other equipment companies.

“I would argue that every new startup has some funding from larger equipment companies,” Risto Puhakka, VP of operations at VLSI Research, told WaferNews.

Although the majority of funding does come from VC firms, equipment companies that are interested in new technology (and want to keep their corporate fingers in it for the future) do invest in startups that have technology that fits their particular profile.

“It happens more than we realize, it’s just not widely announced,” Puhakka said.

According to Raman Chitkara, global managing partner of the semiconductor industry group at PricewaterhouseCoopers, this kind of investing began with Adobe Ventures in the 1980s.

“They were the loner,” Chitkara said, “and then Intel started investing in startup companies.”

Initially, such investing was intended to create demand for products, Chitkara explained, but then, once those portfolios did well, companies began investing in startups that weren’t strategically parallel. However, Chitkara noted that now that the capital market hasn’t been doing so well, strategic investing is mostly what is seen now.

Unlike Applied Materials, which announced the opening of Applied Ventures I – its venture capital arm focused on component and subsystem manufacturers – most equipment companies that invest in startups tend to remain anonymous.

“Companies don’t want to disclose it,” Puhakka said. “It’s not their core business, so companies don’t want it to get around.”

The process of acquiring funding from an equipment company is different than getting VC funding. Puhakka said, “Sometimes you have individuals who don’t want to work for [a large company] so they go around and talk about their interesting technology, and ask companies to invest in them.” Another method is approaching a former employer for funding.

“It can be an internal thing – networking – approaching the people around you,” Puhakka said.

In exchange for its funding, investor companies get a stake in the startup, or a position on the board of directors, or the advisory board.

The list of companies making investments reads like the Who’s Who in the semiconductor equipment world. Puhakka named Credence, Teradyne, TEL, TSK, and Applied, and acknowledged that there are many, many more, some known and some unknown, with the only sure way of uncovering all being a close and careful inspection of annual reports.

According to Chitkara, typical companies making investments in other companies have a lot of cash, low interest, a strong balance sheet, and a history of generating cash flow “so they’re not worried about their own shop.”
Receiving funding from equipment companies is a validation for startups going for funding from VCs, Puhakka said. If the equipment company finds the technology worthy of investment, that helps the venture capital company peg the technology as important.



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