This rush to invest also comes at the same time that more tech giants have unveiled plans to design their own chips, something that is probably not a coincidence.
While venture financing for US-based companies connected to the semiconductor industry broke its previous record in April, after Palo Alto, California-based hardware and embedded systems developer SambaNova Systems closed a Series D from $ 676 million at a valuation of more than $ 5 billion, global financing set new highs last month, according to data from Crunchbase.
In August, total risk dollars poured into sectors surpassed last year’s record of $ 3.4 billion. Semiconductor companies, which can range from chipmakers to design firms to hardware developers, have now raised more than $ 3.7 billion in 85 deals to date this year.
Both US and global investment took their biggest investment steps in the second quarter, with each having $ 1.1 billion and nearly $ 1.7 billion invested, respectively.
Not much of that may come as a surprise to those who follow the news. The current shortage of chips has bothered many industries, as more connected devices and emerging sectors such as robotics mean increased demand for chips. Add on top of that the current COVID-19 pandemic wreaking havoc on many supply chains.
There are also traditional industries that never needed chips before, but now, in a connected society, they need them just as much as a smartphone or laptop manufacturer. The auto industry provides a perfect illustration of that. Last week, consulting firm AlixPartners estimated that the shortage will cost the industry $ 210 billion globally in lost revenue this year, up from its estimate in May of $ 110 billion.
Concerns in that industry prompted the White House to hold a meeting last Thursday with major automakers, tech companies and chipmakers to discuss the situation.
Big Tech Looks at Chips
But that current investment also comes as the world’s largest tech companies have made headlines in recent months about designing their own chips. That started last year when Apple announced its new M1 chips for its devices.
Since that announcement, others have joined the party to design their own chips. In March, it was reported that Amazon is developing its own network chip. And last month, Tesla unveiled the chips it had designed on its Ai Day for its new high-speed computer, Dojo.
Just this month, reports surfaced that Google is getting closer to releasing its own processor for its smartphones and Chromebooks.
Not to mention other companies such as Facebook, which spoke of its interest in designing its own chips more than two years ago, and may be interested in its application for its highly sought-after virtual reality plans.
Investors undoubtedly see the opportunity in the current chip shortage, but just as surely, venture capitalists see the plans of these big tech companies and the potential big merger exits and responses that might await some. of these newly funded companies.
The money flooding the semiconductor industry right now is not to build new, modern foundries, which takes years and billions of dollars, but is more focused on chip design as the industry strives to get more optimized chips. That’s also exactly what these big tech companies are looking for: newer, better-designed chips that can reduce the number of chips needed, the power they use, and possibly ease some of the current strain on the supply chain.
So far this year, nearly a dozen venture capital-backed semiconductor companies have been bought, with the most notable deal being the acquisition of Santa Clara, California-based Nuvia by Qualcomm for $ 1.4k. million in January. While the number of deals is still relatively small compared to other big tech sectors, it already represents the most in any year since 2017, which saw 14.
None of this is to say that Apple, Amazon and Facebook will start buying chip designers and processor developers next week, but investors are looking for the optionality of exits by putting money in. The semiconductor space has likely felt on the downside for years, with companies in the sector seeing a lack of interest from the public market and only a few strategic buyers in the older chip landscape.
Now, with so many of the big tech players joining that realm and looking for a chip of their own, VCs seem to be putting their money exactly where they think many of these companies will too.