Without the prospect of achieving a stock market valuation of a
billion dollars, venture capitalists are not particularly
interested in semiconductor start-ups, a conference organised by
University of Bath and the National Microelectronics Institute was
told earlier this month.
Bringing a touch of gung-ho Silicon Valley venture capitalism to
the UK IC design community, Rupesh Chatwani of the venture capital
firm ADD Partners, said: "When assessing people at the outset, you
have to be convinced that the company could reach a billion dollar
valuation".
By that Chatwani means that the company's valuation on its
initial public offering of shares should be $1bn.
Chatwani said that European ambitions could be too modest.
"People are too willing to take the $100m exit rather than push for
the billion dollar exit," he said. Asked if there were other
venture capitalist firms who were happy to make investments in
companies which only had the potential to reach $100m in value,
Chatwani replied: "Yes, but they're not for us."
Chatwani pointed out that semiconductor companies require $30m
or so of investment to get going these days, and therefore an exit
valuation of $100m only permits a three times return on the
investment.
Since half of all such investments are expected to fail, venture
capitalists need to have ten per cent of their start-up companies
exiting at a billion dollars - so delivering a 30 times return on
their investment - if the venture capitalists were going to be able
to show their investors a sufficient return.
The conference was arranged as part of the SETsquared project
organised by the Universities of Bath, Bristol, Southampton and
Surrey to support very early stage, high-growth, technology
business ventures.
The next SETsquared conference will be on 4 February 2005 at the
University of Southampton when the topic for discussion will be
'How to de-risk silicon start-ups'.
www.setsquared.co.uk
Start-ups decline as funding dries
High-tech start-ups in the UK have declined dramatically in the
last three years with the number of venture capital deals declining
from 70 a month in 2000, to ten or twelve a month this year.
There are fears that the stock market setbacks of 2001-4 could
put back the clock for the UK high-tech investment scene. "It's
probably back to what it was like in 1996/7 and the worry is that
it will go back to where it was in 1990/91," Stuart McKnight,
director of the corporate financial advisers Ascendant, told
Electronics Weekly. "There's a big change in the number of
active investors in the UK. At the peak there were 450 active
investors, now it's down to 120. A lot of venture funds are no
longer with us as a result of the 2001 collapse."
Semiconductor start-ups account for 10 to 15 per cent of all the
venture capital deals in the UK. Company founders who are serial
entrepreneurs, with a track record of success, are more likely to
get funded than first timers.
McKnight was positive about the SETsquared initiative to
incubate IC designers as they morph into entrepreneurs.
"SETsquared has got a lot of people with outstanding plans,"
said McKnight, "it provides safe environments in which they can
develop their plans and it provides people around them who can help
them avoid the big mistakes."
Angel investors, which are firms and organisations prepared to
provide between £25,000 to £200,000 to seed early stage
start-ups, are particularly important in the UK. For Angel
investors willing to invest in UK high-tech start-ups see box
below.