Semiconductor investment plummets! Start-up chip companies fall into bankruptcy

According to foreign media theregister, as the economic recession brings back to reality the astronomical investor hype for semiconductor startups, some venture capital-backed companies believe now is the right time to build for the next boom period, while others stumble and collapse.

The report noted that global venture capital funding for semiconductor startups reached new highs in 2020 and 2021 after several years of modest growth, but this year's economic realities have translated into a significant reduction in capital for private silicon companies that rely on investor cash to survive or grow.

According to data provided by PitchBook, as of December 5, global venture capital investment in semiconductor startups in 2022 reached US$7.8 billion. That's down 46% from last year's record $14.5 billion in investor capital poured into silicon companies, and down 24% from $10.3 billion in 2020.

At the same time, the number of global semiconductor financing deals fell to 618 this year, which is only a drop of nearly 20% compared to the 771 deals recorded last year and is actually nearly 21% higher than the 511 financings in 2020.

Private investor and chip designer Ruta Belwalkar told The Register that this year's slowdown in economic activity has increased investor scrutiny over the viability of semiconductor startups.

While the bar for chip companies has always been higher than for software startups because they are capital-intensive, investor money used to be more accessible.

"But now specifically, what they're asking is, 'Do you have customers? Have you taped out your first chip? Do you have a roadmap for the next few generations?'" Belwalkar said.

Belwalkar is referring to fabless chip design companies that need to raise enough money to hire people, design integrated circuits and then pay tens of millions of dollars for tapeout, the final step in the design process that sends photomasks To be manufactured by contract chip manufacturers (like TSMC in Taiwan).

One chip design startup that has apparently lost investor interest this year is Mythic.

The Texas-based company raised $70 million last year in an attempt to differentiate itself by designing analog chips for edge AI use cases, but it ran out of venture capital before it could generate revenue, according to a November report The news was announced in November by a senior executive, but company officials declined to comment further.

Belwalkar said she wouldn't be surprised if other chip design startups suffered similar collapses soon because they didn't transition from R&D to commercialization quickly enough.

"Now, if there's no way a startup can survive next year and they can't raise money by the middle of next year, they're probably going to run out of money. I'm not saying their IP is bad or anything. It's just that there's a high opportunity. It’s tough maintaining that many people on the team,” she said.

Alternatively, a startup may eventually be acquired if there is an interested buyer.

However, increased regulatory scrutiny of M&A deals and the development capabilities of existing semiconductor companies could weaken this, according to a recent report from PitchBook analyst Brendan Burke on the state of AI chip startups. interest.

Burke was talking about the objections from Western regulators that killed Nvidia's $66 billion bid for Arm earlier this year, as well as acquisitions made by Intel and AMD in the past few years -- Habana Labs and Xilinx, respectively. ——This improves their respective AI chip capabilities.

One area where chip startups are likely to see more M&A interest is automotive. Because larger companies like AMD and Nvidia lack some capabilities compared to automotive-focused chip companies.

“The market size encourages startups to make big bets in this market to grab market share from automotive chipmakers led by Infineon, NXP and Renesas,” Burke said.

Even if a semiconductor startup starts selling products to customers, there's no guarantee of future success, a reality that becomes even more apparent when the economy takes a downturn.

Graphcore, a well-funded Bristol, U.K.-based AI chip startup aiming to compete with Nvidia, has reportedly had its private valuation slashed this year amid other financial woes after losing a key deal with Microsoft. $1 billion. The Times reported in October that while Graphcore's revenue increased slightly last year, to $5 million, the company's losses also increased to $185 million. The newspaper added that these difficulties prompted Graphcore to cut about 170 jobs this year.

Graphcore said in a statement to The Times: "Graphcore has significant cash reserves and is well-positioned... However, the macroeconomic backdrop is extremely challenging. This means making some difficult but necessary decisions around our priorities. to put us in the best position for sustainable growth in 2023."

The 2022 State of AI report, written by two AI-focused venture capitalists, highlights the difficulty for smaller AI chip companies to compete with Nvidia, showing that GPUs are cited more often in AI research papers than Graphcore, Intel's Habana Labs unit and three other well-funded chips. 90 times more startups (Cerebras Systems, SambaNova and Cambricon). Among smaller Nvidia rivals, Graphcore had the most citations in research papers in 2021 and 2022.

"We have years of experience, we have a lot of paying customers, which I don't think others have," Andrew Feldman, CEO of Cerebras Systems, a Silicon Valley wafer-scale AI chip company, told The Register.

Feldman declined to discuss his own company's financial figures, but said customers are buying more systems "year after year." The startup won't have to raise another round of funding for the next six to nine months, he added.

"How do you know when you're doing well in a tough market? When your customers buy more, when you have more customers, when you're solving really hard problems for them," he said.

Cerebras isn't the only venture-backed silicon company confident about its future during the downturn, and a major reason for both startups is how they plan to capitalize on two growing trends in the semiconductor space.

One of them is Eliyan. The Silicon Valley startup announced in November that it had raised $40 million in funding to commercialize its chip-to-chip interconnect technology, which it claims will make chiplet designs increasingly accepted by the industry. A superior way to design chips – more cost-effectively than advanced packaging solutions.

Eliyan CEO Ramin Farjadrad told The Register that as the economy puts a drag on semiconductor companies' profit margins, demand for its solution has increased because it can help them save on small chip manufacturing costs in the future.

“As part of our technology, one of the keys we deliver by eliminating advanced packaging is improving the overall cost of these types of products,” he said.

Farjadrad said the current economic downturn has also brought other benefits. As industry demand has cooled, Farjadrad said he has been able to get certain materials faster and for less money. As semiconductor stocks fell earlier this year, the labor market became less competitive, making it easier for Eliyan to hire technical talent from large companies.

“Even six months ago, we might have had trouble poaching really good people from big companies because their [restricted stock units] were high and so on,” he said. "But now, it's a lot easier. People are even reaching out to us, so we don't have to spend as much recruiting."

Astera Labs is also on a hiring spree, even though the semiconductor startup initially didn’t plan to do so much longer as a privately held company. That’s because it had hoped to go public by the end of the year, then decided not to.

Instead, Astera Labs raised another $150 million round from investors this year, more than tripling its valuation to $3.2 billion, bucking a trend of tech company valuations falling sharply in 2022.

Astera Labs CEO and founder Jitendra Mohan told The Register that the Silicon Valley company does not need to raise more capital because it already generates "significant revenue" and has a good balance sheet.

However, Astera Labs and its investors believe the company is on the cusp of a significant opportunity as it develops a chip architecture that allows hyperscale and cloud customers to take advantage of Compute Express Link. CXL is a standard introduced in new Intel and AMD-based servers that will, among other things, enable cheaper, more flexible and larger DRAM configurations and memory pools.

"We found ourselves in a leading position on CXL. Our investors looked at the company with us and said, 'Look, it's time to put the pedal to the metal,'" he said.