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Industry giants see more businesses in VC

Posted: 09 Jul 2008 ?? ?Print Version ?Bookmark and Share

Keywords:venture capital? VC investment? semiconductor industry? R&D?

Despite changing returns and priorities in venture capital investment, money is continuing to flow from a who's who list of industry giants, including Intel, Schneider, Panasonic, Docomo, Dow Chemical, Siemens and Qualcomm. Startups including PicoChip, Arteris, ip.access, Tiempo and Zensys are just a few European startups to tap corporate venture capital investors in recent months.

The list of semiconductor sector corporate investors is set to grow as companies such as Robert Bosch ramp up their activity. Bosch recently allocated about $300 million to its corporate venture unit.

Why invest?
In these cost-cutting corporate times, are electronics industry giants looking to outsource R&D to the venture market? Talking to investors, their answers, if anything, suggest that the weight is more on the "D", as in business development and product development, than on the "R".

"Our focus is on investing in people who are business partners, or who could be business partners sometime soon," said Ralf Schnell, president and CEO of Siemens Venture Capital.

Similarly, Motorola Ventures invests if there is a "high probability" of its parent engaging with a startup, according to John O'Donohue, managing director at Motorola Ventures who recently spoke to EE Times Market Intelligence Unit for the Venture Capital Scoreboard report.

The forms of engagement are various. They could be licensing agreements, OEM deals, or joint R&D. "It might not be dollars in year one," said O'Donohue alluding to the time it takes to realize partnerships that exploit what he calls commercial leverage.

Financial returns
While the way industry giants undertake corporate venture is pretty much unique to each playersome do direct investments, some do indirect investment via venture capital funds, and some do boththe activity is certainly not meant to be written off as an expense of doing business or a tax loss with fringe benefits.

"Dow invests primarily for financial return and will seek strategic synergies where these do not compromise our financial discipline," said Paul Morris, who heads up Dow Venture Capital in Europe.

An investment made by Robert Bosch Venture Capital GmbH, for example, needs to make "sense financially," as much as it would to any.

Patel said it is "tricky" but even less-favored venture categories such as EDA can provide returns "if done right."

The semiconductor industry's corporate venture firms have to marry risk with corporate goals. One way they manage that is by investing in slightly more mature startups.

"We are not a very early stage investor. There has to be a prototype or first reference customers in place that have provided feedback," commented Siemens' Schnell. Motorola Ventures also comes in later, investing in the Series B round. Its financial criteria include things like the experience of the management team, the size of the targeted market and the business model.

One investor that might go in at a much earlier stage is VentureTech Alliance. Its majority-limited partner is Taiwan Semiconductor Manufacturing Co. Ltd, the world's leading foundry, which quite naturally has an interest in startup fabless chip companies that want to use chip-manufacturing services. It exhibits a different venture model to those mentioned so far. Two of the partners used to work for TSMC and two were customers of TSMC, but the firm's investment decisions are made independently of TSMC, according to Ron Norris, managing partner.

"We are careful about the relationship. What happens at our companies does not necessarily go back to TSMC," said Norris.

The venture team does get input, however, from the foundry giant in the form of regular briefings on upcoming trends in semiconductors. "We listen to the TSMC updates and then use our understanding of TSMC's core strengths and capabilities and try, in our own minds, to be active in areas that might just possibly intersect with these strengths and core capabilities at some point in the future," said Norris.

It also means that the startups Norris' team backs do not automatically pass into the TSMC foundry program. However, the VentureTech team can help open doors for startup's founders, so why not take advantage of it? "We know everyone there and who to contact. And we know what kind of approach is the best," said Norris. Just like independent venture capital, corporate venture capital is about more than the cash offered up.

Filling the missing piece
Good corporate investors can sometimes offer access to a missing piece of technology or expensive laboratory facilities. For example, as the result of an investment by Dow Venture Capital, the French startup Varioptic, whose liquid lens technology is used in digital cameras, was able to outsource some of its R&D to investor Dow.

Dow paid their salaries and provided equipment and infrastructure. Only if pre-defined milestones were reached did Varioptic pay a fee, and it paid in shares. "It was a very good collaboration. Varioptic received not only capital but also R&D services from a world-class lab," commented Alain Rodermann of Sofinnova Partners, Varioptic's early investor.

Another positive example is provided by VentureTech Alliance. It was an early entrant investing in MEMS startups. One of its bets was Iridigm Display Corporation, which was acquired by Qualcomm in 2004. Its technology now underpins Qualcomm's mirasol displays. Qualcomm is now investing in a MEMS display fab, while TSMC announced its entry into the MEMS market earlier this year with a roadmap.

Examples like this suggest that corporate venture capital, regardless of the investment model, is spurring adoption and commercialization of innovations, such as MEMS and disruptive optics. Deep-pocketed corporate venture capital players clearly have a role to play in the startup economy. Without them, the semiconductor and electronics world would be somewhat less vibrant and dynamic than it is today.

- Valerie Thompson
EE Times Europe





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