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060818: VCs Still Show Us Some Love
Ed’s Threads 060818
Musings by Ed Korczynski on 18 August 2006

VCs Still Show Us Some Love
Last Sunday, the San Jose Mercury News published its quarterly survey of Venture Capital money going to San Francisco Bay Area firms, and “semiconductors” still gets some of the love. Though, I’m not sure that VCs have entirely shaken off the herd mentality that led to the “Dot Com Bubble.” On the list were no less than 5 startups that plan to help you “search” the internet, and seven companies planning to do something in “social networking”/“dating”/“online community”…which means everybody still wants to have both a Google clone and a MySpace clone in their portfolio. Still, over $250M of VC love went to new “semiconductor” startups in Silicon Valley in 2Q06, so some people are willing to take risks.

Within the category of “semiconductors,” the vast majority of companies are fabless—no surprise. What may be a surprise to some folks is that many of these companies are likely to hire their design engineers outside of the United States. The company headquarters and top executives may be in Silicon Valley, but most of the engineers will be in China, or India, or Romania, or anywhere else. I don’t have any specific inside knowledge on any of the fine companies in this particular list, but this is the general trend over the last couple of years.

I’ve spoken with many Sand Hill Road VCs in the last year, and the unanimous opinion is that paying burdened engineering salaries in the US results in too high a burn-rate, and that equivalent talent can be had for less, so why waste money? It used to be just Silicon Valley and New England and metro New York salaries were too high, so teams had to be spread around the US. But now teams can’t even be located in Ohio (no offense intended to the citizens of the “round on the ends; high in the middle” state).

Depending on your point-of-view, the shift of engineering jobs outside the country either pragmatically results in better final products (considering the individual company), or blindly results in a “race to the bottom” (considering macro-economics). As is often the case, the reality is likely somewhere in between. …lowered development costs can let a greater number of new products come to market, and can make it easier to take risks in developing new functionalities, … but if all companies followed this policy then Silicon Valley as such would fade into history.

Also in recent money news for our industry, Alien Technology withdrew its pending IPO after institutional investors were reportedly less than enthusiastic about the company’s current financial situation. Alien’s is a classic Silicon Valley story: licensed technology from U.C. Berkeley, bold vision for a revolutionary new consumer application, and great success in spending money. Anisotropic etching of silicon can form upside-down pyramids with circuitry on the base, and these micro-pyramids floating in a fluid can flow across a surface with micro-embossed cavities to capture the chips. This claimed 2 million chips per hour technology, termed “Fluidic Self-Assembly,” was an interesting solution-looking-for-a-problem until Alien found the seemingly boundless volumes projected for RFID. History will have to judge their vision.

Perhaps the most significant money news of the week was the seeming success of Frank Quattrone’s appeal in reversing all charges and penalties associated with allegedly showing excessive love toward “Friends of Frank.” This can only be good for more money to flow through the Valley, to again propel the high-tech mills of the clever and/or connected.

— ed

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060818: VCs Still Show Us Some Love

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Ed's Threads is the weekly web-log of SST Sr. Technical Editor Ed Korczynski's musings on the topics of semiconductor manufacturing technology and business. Ed received a degree in materials science and engineering from MIT in 1984, and after process development and integration work in fabs, he held applications, marketing, and business development roles at OEMs. Ed won editorial awards from ASBPE, including interviews with Gordon Moore and Jim Morgan, and is not lacking for opinions.