Chips Dip in Q3, But Up for 04

VC investments in semiconductor related startups dipped, as only 51 startups raised $711 million during the third quarter of this year, the first decline since the second quarter of 2003, according to original research by PE Week.

The slowdown in the quarter reflects the overall downturn in Q3 VC investments, according to the MoneyTree Survey from PricewaterhouseCoopers, Thomson Venture Economics (publisher of PE Week) and the National Venture Capital Association.

However, compared to the third quarter of 2003, 55% more money was invested and the size of the average investment – at nearly $14 million – increased for the third quarter in a row.

More importantly, 2004 VC investments into semiconductor startups for the first three quarters now stands at $2.28 billion, which surpasses the yearly totals for 2002 ($1.6 billion) and 2003 ($1.7 billion).

Q3 semiconductor investing also keeps 2004 on pace to surpass year 2000 numbers and has already set a new record for investments, measured in terms of the number of deals made in a single year.

The most active investors in Q3 were Vantage Point Partners which made four investments. Benchmark Capital, iSherpa, 3i, Mohr Davidow Ventures, VentureTech and Walden International each made three investments. More than 120 other VC firms made investments in the sector during the quarter.

However, the quarter was a disappointment for the dozens of VC-backed semiconductor companies that hoped to go public. Only three companies launched IPOs from July through September: Freescale (NYSE:FSL), Volterra, (Nasdaq: VLTR) and Netlogic (Nasdaq: NETL).

Similarly, the quarter showed slowed M&A activity with only around a dozen acquisitions of venture-backed semiconductor startups by public companies.

One of the biggest M&A transaction was for Alphamosaic, which was purchased by Broadcom (Nasdaq: BRCM) in a deal worth around $130 million. The company had raised about $40 million from investor Doughty Hanson Technology Ventures, Prelude Trust, ACT and TTP Ventures.

Also, Iridigm, which had raised more than $46 million from Gabriel Venture Partners, August, Dynafund, Intel, Qualcomm, Steamboat Ventures, and Venturetech, was purchased by Qualcomm (Nasdaq: QCOM) for $170 million in cash.