IEF2012: The VC problem needs addressing, says XMOS’ Toon.
The disinterest of VCs in investing in silicon companies is becoming a problem for the industry, Nigel Toon, CEO of XMOS, told IEF2012 organised by Future Horizons in Bratislava this morning.
Toon pointed out that there were only three silicon IPOs last year – Peregrine, MagnaChip and Freescale. That is highly discouraging to VCs.
He also pointed out that the problem for start-ups is that major OEMs, which are the customers start-ups want, are not inclined to buy from start-ups.
“Major OEMs don’t believe start-ups can succeeed,” said Toon, “they’re slow to adopt new technologies, they’re reluctant to buy from new companies.”
Toon quoted a recent comment from a VC: “We are only interested in investing in companies with 10m euros or more in sales, that are capital efiicient and have a growth rate of more than 50%.” There’s not much of the risk-taking attitude in that remark.
Looking back at Kleiner Perkins’ returns between 1980 and 1999, Toon pointed out that the various funds raised in that time frame typically returned 2X to 4X. The 10x returns of legend are a myth.
The Global Semiconductor Alliance says the lack of funding is having ‘a large and adverse impact on the growth of the overall semiconductor industry’ and that it is looking for solutions to this problem.
One possible solution, said Toon, is an initiative called Silicon Ventures which is raising a fund from established semiconductor companies to fund new ones. That allows established companies to drive specific investments while benefitting from a portfolio of investments. Co-funded development with customers, and investment by potential acquirers, are part of the model.