VCs See Profit In Display Companies

VCs have pumped money into fabless display and imaging semiconductor startups faster than you can say, “cluster invest.”

Last week, BA Venture Partners and Sevin Rosen Funds invested $5.3 million in a Series A round for Beaverton, Ore.-based Enuclia. That deal follows other recent activity, including a $13 million investment by The Carlyle Group, Pacific Venture Partners and Chengwei Ventures, in a Series C round for Shanghai-based Huaya Mircoelectronics. And Horizon Semiconductors of Israel received $16 million in a Series A round last month from JVP, Giza Venture Partners and CSK Capital.

In all, investors are on pace to back more than 200 semiconductor-related startups in 2004 with more than $3 billion in funding. In comparison, VC investments in semiconductor startups in 2003 totaled just a little more than $1.7 billion in 137 deals, according to original research by PE Week.

“This field [electronics components for next generation flat panel and cathode ray tube displays] is experiencing fast growth,” says Jim Jones, managing director of San Francisco-based BA Venture Partners. “There are lots of places where startups can innovate and the industry has a long way to go before such components become commoditized.”

If hearing that semiconductor deals on the rise sounds familiar, that’s because it is. In 2003, there were a plethora of startups raising capital to develop capture chips for digital cameras; imaging and displays in cell phones; and digital signal processors for video and audio applications. At the time, critics predicted a troubling future in an overcrowded investment arena, in which startups would have to compete with powerful corporations such as Sony, Samsung, Philips and LG Electronics.

But the recent wave of imaging semiconductor startups is different, because this time much of the growth revolves around the four Asian countries of China, Taiwan, Korea and Japan. Many Taiwanese, Korean and Japanese manufacturers are investing in huge new production plants in China. Jones notes that many startups have a chance to supply their products to Asian manufacturers, such as LG Electronics of Korea, which announced the world’s largest plasma display panel, a 71-inch, diagonal, flat panel TV on Nov. 22. Jones also notes that startups, such as Enuclia, are aiming for high-end applications.