Applied Gets Into VC Game

Just as most companies are getting out of corporate venturing, semiconductor giant Applied Materials Inc. is getting in.

The Santa Clara, Calif.-based firm, one of the world’s largest chipmaking equipment manufacturers, recently set up its first venture fund to make small, strategic investments mostly in start-up optical communications companies.

“We set the fund up now because now is the best time to invest,” said Julien Nguyen, the fund’s managing director. “There are very low valuations, and now we have the time to make up our minds and do complete due diligence on a company.”

What is more, there isn’t much competition from other corporate VCs, which gives Applied Materials a strong command of the investing arena despite the fact that it is a newcomer to the club.

The fund, Applied Materials Ventures I, has a traditional general partner/limited partner set-up, and acts as an independent venture firm within its parent company. Currently, Applied Materials is the only LP in the fund.

The company has not disclosed how much it will commit to the venture capital fund, but since Applied Materials Ventures has just three employees at the moment and its average transaction size will be about $2 million for seed rounds and up to $5 million over the life of an investment, the fund’s total capitalization will likely be less than $100 million.

Applied Materials Ventures I has already backed one optical communications company called Zepton Networks, investing alongside such VC big guns as Kleiner Perkins Caufield & Byers, Benchmark Capital, Accel Partners and Worldview Partners.

“We were invited to join the deal because of the value Applied Materials can bring to the company,” Nguyen explained.

Additionally, Applied Materials President Dan Maydan sits on Zepton’s board of directors.

The fund will source deals through a variety of channels. Like the Zepton offering, Applied Materials Ventures may be called on to take part in a syndicate with other VCs, or it may choose to pump money into a concept company in order to take advantage of a cutting-edge technology offering, for example.

Applied Ventures will take active board seats or board observer rights in every deal, and will selectively lead certain transactions, particulary on seed and start-up investments, Nguyen said.

Interestingly, none of Applied Materials Ventures’ staff was hired from inside its parent company. Nguyen, who is currently the fund’s sole partner, comes from an entrepreneurial background. In fact, he started a total of four companies that he has either sold or taken public. The fund also has signed on a U.S.-based operations associate and a principal who is based in Israel.

Additionally, Applied Materials Ventures is in the process of hiring its second GP, also from the outside. It has no plans to hire any additional staff until it raises a second fund, Nguyen said.

Robyn Kurdek can be contacted