Silicon Startups Get Incubator

Keysight, Synopsys, TSMC are first partners

SAN JOSE, Calif. — Three semiconductor veterans announced plans for an incubator dedicated to helping chip startups design their first prototypes. Silicon Catalyst aims to provide support for a sector many traditional venture capitalists have fled.

Keysight, Synopsys, and TSMC have signed exclusive deals to provide tools and services to the incubator. Silicon Catalyst aims to select its first batch of about 10 chip startups before April.

The company seeks startups in markets such as the Internet of Things, biotech, mobile, energy, and transportation, typically with fewer than 10 employees and less than $2 million of prior financing. In addition to office space and computers, it will give them as much as $500,000 in seed funding and $1 million to $2 million in goods and services from its partners, including free access to EDA and test tools, as well as a spot for their prototype on a multi-project wafer.

The incubator is setting up a network of mentors and links to other investors. In turn, it will typically ask for less than 20% equity in the startups.

The deal aims to provide a faster and more frugal path to market than traditional venture capital, which may take the majority of a startup's equity. In any case, most VCs have turned their attention to software and services startups that they say generally need less funding and produce higher and faster returns.

"This is the most interesting time ever to innovate in silicon, because all the exciting end markets will require new semiconductor innovations at their heart," said Mike Noonen, co-founder of Silicon Catalyst and a former sales executive at Globalfoundries and NXP. "But most of the traditional investors have moved on. They treat silicon like toxic plutonium, because there's a belief there's a long time to revenue and it requires a big investment."

Noonen co-founded Silicon Catalyst with Dan Armbrust, the former president of the Sematech research consortium, and Dan Lazansky, a former Agilent executive and founder of Denali. The incubator got some seed funding from its founding trio and is now raising $10 million to bankroll its first group of startups.

Silicon Catalyst expects to germinate chip startups for about 12-24 months.

Next page: A farm team for Intel, Samsung

A farm team for Intel, Samsung

There are as many as 2,000 incubators and accelerators around the world, Noonen said, but none are focused on semiconductor startups. Silicon Catalyst's biggest competitors are chip firms such as Intel and Samsung that have their own VC divisions and incubators.

"We are the farm system for what they do," he said.

Silicon Catalyst aims to act as a virtual incubator for dozens of small chip makers that lack the resources of their large competitors. Noonen sees acquisitions by such companies -- not IPOs -- as the main exit strategy for chip startups. He is working with two established chip makers who may become partners in Silicon Catalyst.

Many serial entrepreneurs in semiconductors, such as the team behind Cavium's XPliant processors, already use their personal connections to find established companies that will nurture them to success. But Noonen believes there is still untapped potential.

"The history of acquisitions in semiconductors has been pretty poor. I've seen data that semiconductor M&A lags almost every industry, including shipbuilding," he said. "By being an early warning radar for innovation, we can help all these companies do a better job -- and less expensively."

One ambitious chip startup recently emerged after having taken in $125 million in financing. But Noonen said it's possible to bring chips to market on much smaller budgets. He sits on the board of Adapteva, which has produced multiple high-end processors on less than $5 million of financing -- including some made in 28nm technology. "It shows if you are frugal, you can still do interesting things with advanced technology, but the majority of design starts this year will be in trailing nodes like 130nm."

Noonen's time at Globalfoundries and on the Global Semiconductor Alliance board helped alert him to the struggles of chip startups. Brian Toohey, head of the Semiconductor Industry Association, "turned us on to the thriving investment climate in pharma and biotech," from which he aims to cull about 20% of his startups.

Silicon Catalyst is in the final stages of working out arrangements with its three announced partners. They basically see the incubator as a way to use free access to tools and services as a way to acquire new customers, he said.

— Rick Merritt, Silicon Valley Bureau Chief, EE Times