Semiconductor startups used to rule the roost in Silicon valley. The very name, Silicon Valley, comes from the birth of the semiconductor industry in the San Francisco bay area 60+ years ago. As recently as 15 years ago, a large fraction of venture financing used to go to semiconductor startups. As a semiconductor designer doing startups in the late ’90s and early 2000s in the SFBay area, I felt as if there was a semi startup in every street corner.
Not so much in the last 10 years. Maturing industry, high capital requirements, and dwindling exits have caused a huge decline in funding for semiconductor startups. The narrative of silicon valley moved to consumer internet and software-led businesses. Remember, the software is eating the world. But in the last few years, we have seen a steady resurgence of semiconductor startups and witnessed blockbuster financing and acquisitions. So, are semiconductor startups on the comeback trail? Or is it a mirage?
First of all, it is important to separate semiconductor startups from the overall semiconductor industry. Globally, the market for semiconductor products has been growing for several decades and in recent years led by growth in computers, smartphones, consumer electronics, and automotive & industrial electronics. Computers have gotten powerful, phones have faster internet speeds, consumer gadgets have gotten smaller - all because of the technological
Figure 1: Semiconductor Consumption Chart
So, what is the problem with semi startups - In a large growing market with improving technology why is there no place for new startups? While semiconductor is maturing as an industry, it is hardly a commoditized market with no place for innovation.
Well, structurally a few things happened.
1. Clean tech, one of the prominent semiconductor sectors, had flopped badly, losing lots of capital for investors.
2. The technological advances made in internet infrastructure, mobile technologies led to a huge boom in the software application ecosystem across social, mobile, and cloud moving entrepreneurial interest away from semiconductors.
3. China emerged as a large supplier of semiconductors increasing competition while driving down premiums in the market.