Walden International Puts All Its Chips In One Basket

Walden International’s Lip-Bu Tan hasn’t cashed in his chips yet. But he has amassed a number of chip investments in China as the firm now plans to invest exclusively in semiconductor startups, PE Week has learned.

Tan says that the shift from general technology investments to solely chip deals has been underway for more than a year, as Walden made 12 investments in semiconductor related startups from November 2003 to January of this year. Tan says that he envisions a similar investment pace in early stage chip deals over the next few years.

Even more startling than seeing a major blue-chip VC turn to a single investment focus is the fact that seven of the firm’s investments in semiconductors were in Chinese startups, which is still an emerging – and untested – market for venture investors. Walden also invested last year in chip companies based in Singapore, India and Taiwan. Only two of the dozen chip deals last year were U.S.-based companies.

But Tan is no stranger to China chip companies. He was one of the early backers of Shanghai-based Semiconductor Manufacturing International Corp. (SMIC), which recently became the fastest company ever to hit $1 billion in annual sales. And he helped to bring other VCs into the deal, which paid off when SMIC launched a $1.8 billion IPO last year.

“Lip-Bu Tan has tremendous experience in these markets [of Asia] and so a firm like Walden can make bold moves like this,” says A. Mangesh Pimpalkhare of Thomas Weisel Partners. “Most other investors-those who don’t have the experience or the feet on the ground in China-will have to take baby steps, rather than making such a dramatic change of focusing on so many chip deals in China.”

Tan says that Walden has wound down its life sciences practice and has also ceased to invest in other previous sectors of focus for the firm, such as telecommunications equipment startups, because of the high costs and low likelihood of returns in present market conditions. Tan says that Walden International’s LPs told him to stick to what he is good at, semiconductors, “Where I seldom lost money on an investment.”

Tan can’t be accused of overstatement, though not every investment is as high profile as SMIC.

Walden’s one disclosed semiconductor bust was in a company called Invox Technologies in Campbell, Calif. Tan says Walden invested $2.8 million. Co-investors included New Enterprise Associates and CMEA Ventures, according to The MoneyTree Survey from PricewaterhouseCoopers, Thomson Venture Economics (publisher of PE Week) and the National Venture Capital Association. Investors sold Invox for $1.2M, a loss of 40 percent.

On the other hand Tan says the list in which Walden has made 10 times return on its investments includes Integrated Silicon Solution Inc., Centillium, S3, IC Works, Newave Semiconductor/IDT, Electronic Resources, Transmeta, Microchip, Leadis and Unisem.

In the past year, Walden has had four of its portfolio companies launch IPOs, and another, Ikanos Communications, is in registration.

Tan notes that Walden’s torrid pace of investments in Asia will position the firm well for the next few years as China’s communications infrastructure and digital media standards are expected to be built up in time for the 2008 Summer Olympics in China.