U.S. semiconductor startup funding slows despite AI beckoning

Whether it’s SoftBank-backed chip maker Arm’s attempt to go public or the tech behemoths vying for dominance in AI server chips, semiconductors have been a permanent fixture in the news cycle lately. seems to be building

The industry also appears to be attracting investor interest, but unlike in recent years, that certainly isn’t the case with US-based semiconductor startups.

Search less. Please close more.

Grow revenue with an all-in-one lead solution powered by the leader in private company data.

Global venture investment has maintained a steady pace through just over a third of this year, with startups receiving nearly $2.3 billion in 168 deals, according to Crunchbase data. At this pace, this year’s total should be just a notch below the $7.9 billion the semiconductor startup made in 349 deals last year.

It’s also interesting to note that unlike many industries, semiconductors didn’t see a significant drop in funding for 2021 and beyond last year. Thanks to some big financings, mostly by Chinese companies. In 2021, semiconductor startups raised $8.3 billion in 263 deals worldwide.

But closer to home, US semiconductor startups aren’t doing so well, according to Crunchbase data. Venture funding is poised to reach its lowest total since 2019, when domestic startups raised just $712 million in 60 deals.

U.S. semiconductor startups have so far raised only $262 million in 17 deals through 2023.

big money abroad

Global numbers have been boosted again this year by several large rounds from China, including SJ Semi, a foundry based in China with customers around the world, in April with a Series C It includes the huge amount of funding of $ 340 million.

In fact, all four of the biggest rounds in semiconductor startups this year have come from companies based in China.

Meanwhile, the largest U.S. round went to Santa Clara, Calif.-based 5G chip maker EdgeQ, with $7,500 from a handful of institutional and strategic investors including the Strategic Development Fund, EDBI, Iron Gray and ST Engineering. Received million dollar investment. .

“This environment is not an easy one to raise capital,” said Vinay Ravuri, co-founder and CEO of EdgeQ.

EdgeQ’s business maturity has helped a lot in a market where investors have returned to looking for basic fundamentals, Rabri said. The company has not only customers, but actual chips as well as designs, and will generate revenue this year.

“We were different, and that was important,” said Raburi, adding that his relationship with investors also helped.

Who are the investors?

However, the U.S. semiconductor industry has never raised a significant amount of capital due to the complexity of the technology and its ecosystem, and the small number of investors specifically focused on it.

“Semiconductors have always had their ups and downs,” said Stefan Dickerhoff, managing partner at Palo Alto, Calif.-based Satterhill Ventures. The company’s portfolio includes semi-startup Astera Labs, which raised $150 million in a round last November, and open-source semiconductor technology and software provider SiFive, among others in this space.

“This is not generalist territory,” he added.

That doesn’t mean there aren’t big opportunities. As new technologies emerge with complex needs, investors see more potential in specializing chips for various areas such as AI, sensing and automotive.

“The current wave of new applications that require us to rethink our semiconductor architecture approach has made it difficult for us to move forward,” said Nicholas Brathwaite, founder and general partner of San Francisco-based Celesta Capital. I think it’s one of the richest times for the industry.” The deep tech investment firm’s portfolio includes Palo Alto, Calif.-based Sambanova Systems, whose 2021 $676 million round is the first in history for a U.S.-based semi-startup. maximum.

Role of AI

Not surprisingly, AI could play a role in the next chapter for semiconductor startups.

“ChatGBT will force us to rethink our data center architecture,” says Brathwaite.

The AI industry is driving changes in graphics processing unit and network I/O needs, and those changing demands can present investment opportunities.

“AI has fundamentally different needs for computing,” says Dyckerhoff.

As end-user-focused generative AI companies raise billions of dollars, chip startups focused on the AI ecosystem could gain share. In fact, SambaNova started out as his AI chip designer.

“We’ve seen some money thrown into these startups, and we’re going to see a lot more,” Brathwaite said.

EdgeQ’s Ravuri said the role of AI in the semiconductor industry could expand beyond which chips are used in new AI applications. Artificial intelligence could actually help chip design and manufacturing, and could assist scientists with some of the industry’s most complex mathematical debates and problems, he said.

AI could also be incorporated into the electronic design automation tools engineers use to create chips, he added.

“There’s definitely an opportunity,” he said.