Charting how much investing goes into various sectors is a lot like watching your favorite baseball team start the season going undefeated in its first series at home. It’s great to be excited about a team. But there’s still a whole lot more baseball to play.
Similarly, after the first three months of 2004, it looks as though semiconductor companies will be the hottest investment on the market, although there’s still three-fourths of a year to go.
Nonetheless, investments in semiconductor companies by the venture community took off during the first quarter of 2004 as 150 venture firms pumped more than $770 million into 60 semiconductor related startups, according to original research by PE Week.
The first quarter’s tally surpassed each of the previous four quarters of 2003 and almost represents half of the activity of last year (when investors drove more than $1.6 billion into 138 deals during 2003).
Among the most active investors in the first quarter of 2003 were: Auriga Partners, BA Venture Partners, Draper Fisher Jurvetson, 3i and InterWest, each of which made three investments in semiconductor during for the first quarter. Plus, 21 other firms – such as Accel Partners, August Capital, JVP, Kleiner Perkins Caufield & Byers, Mobius Venture Capital, Sevin Rosen Funds, and Storm Ventures, among other each made two investments in semiconductor companies during the quarter.
Interestingly, several firms which are normally the leading investors in semiconductors companies- Apax Partners, Granite Ventures, Needham Capital Partners, New Enterprise Associates, Sequoia Capital, Mohr, Davidow Ventures and TPG Ventures, among others – slowed their investment pace during the first quarter.
The slower pace by these investors is understandable given their need to absorb the previous year’s investments.
“We were just as active during the quarter as we ever were,” says John Michaelson, president of Needham. “We continued to look for deals, but we’re finding that we’re being out-bid on investments by firms who were less active in semiconductor investing in the past.”
That same experience was confirmed by GPs at several other top tier firms involved with semiconductors, such as Carlyle Ventures, Alta Partners and Sierra Ventures.
Indeed, while there were around 150 venture investors in semiconductors throughout 2003, the same number of investors took part in the first quarter of this year alone. And while the average investment has remained about the same, at just over $12 million per deal over the last five quarters, overall, investments have shifted slightly towards earlier stages during the first quarter of 2004. The emphasis on See and Series A and B deals means that the newer investors are also paying more to enter the field.
Looking across the semiconductor sector, investments were split into three categories, but fables reigned supreme. A total of 57 fabless startups received $687 million during the first quarter. Meanwhile, four electronic design automation or semiconductor test startups received $34 million and five startups in a grouping of manufacturing, packaging and materials firms received $29 million.
GPs note that part of the increased enthusiasm for semiconductor related investing comes from the generally positive outlook on the semiconductor market, which is in turn based upon growing sales and bookings for future orders by public semiconductor companies.