abound, but funding is tight for start-ups
BIG PICTURE: Veteran venture capitalists say semiconductor tool
and other supplier start-ups have to work hard to secure financing.
BY ROB COLVIN
potential semiconductor equipment, materials, and software start-ups,
linewidths aren't the only things that are shrinking. The transition to
nanotechnology and the introduction of new materials present fat opportunities
for fledgling companies with the right solutions for yield-conscious customers.
But entrepreneurs looking for funds to launch their companies will find
that the pool of interested investors is shrinking as well.
Whiting is the managing partner of DynaFund Ventures, a high-tech venture
capital firm based in Torrance, CA. A partner in the firm with Lam Research
founder David Lam, Whiting says start-ups have to search more for seed
money than in previous years. "It is true that the universe of venture
capital firms that are interested in funding semiconductor companies—especially
semiconductor equipment companies—is a smaller universe than the
universe of firms that are willing to fund some other areas; software,
for example. Because of that, it's generally true that semiconductor equipment
companies have to work harder to find financing, particularly in the first
and other veterans with a wealth of experience in the equipment industry
point to a number of reasons for the funding scramble. Investors see a
mature industry with high barriers to entry, huge start-up costs, and
a 10- to 15-year wait for a potential return. Globalization also plays
a role, as start-ups in the United States face financial competition from
potential new firms in growing regions such as Asia. In addition, the
decline of government research funding and contractions at industrial
R&D organizations such as Bell Labs and RCA Laboratories have left
more research to universities, which have less expertise in commercializing
generally usable ideas.
Hazard, president and CEO of four-year-old Lightwind, headquartered in
San Francisco, says global competition has upped the ante for companies
just starting out. "You take a look at the globalization of IC manufacturing
and, in order to be effective, you have to be able to deal with global
issues. I don't think that was always the case. Back in the early 1980s,
I think you could be successful regionally and be very successful as a
company. The willingness of a fab to adopt a new technology and take risks
is dramatically different now than it was in that period. Therefore, if
you're introducing a new technology, some of the barriers to entry are
quite significant compared with what they were back in the early 1980s."
mature industry becomes more hesitant about accepting new technology,
Hazard believes. He emphasizes that beta testing is critical for a product
entering the marketplace, "because that's where you quickly separate fact
from fiction." Lightwind recently completed beta tests at IDM sites of
its L3 tool, an in-line process sensor that sits on the exhaust port of
a plasma strip, etch, or deposition system to monitor the composition
of wafer process chemical by-products. The company is preparing for a
major ramp-up in 2005–2006.
testing can dispel doubts, Hazard notes. "One of the things that is very
difficult as the industry becomes more mature and there's more and more
consolidation is that very often technologies are viewed as disruptive,
or a new approach very often has a difficult time being nurtured within
an existing semiconductor equipment manufacturing organization because
you have to look at the impact on the existing product line and revenue
launches of companies such as Lightwind, Quantiscript Nanotechnologies,
Metara, and Ponté Systems over the past few years prove that equipment
and software start-ups can flourish in today's more barren terrain. They
just need to know how best to tap sources that will help them grow. Furthermore,
entrepreneurs must realize that the IPO's heyday has passed and that their
future success will depend on partnerships and mergers with established,
keys to drawing money from that shallow pool? Technology with strong IP
protection certainly helps investors sleep better at night. But there
are three overarching factors for convincing skeptical investors, according
to Claude Brisson, president and CEO of Quantiscript: having a breakthrough
technology, a strong management team, and a good business model.
from research conducted at the University of Sherbrooke in Quebec, Canada,
the company specializes in non-spincoated resists and associated process
technologies. Quantiscript sells two products: QSR-5, an evaporated E-beam
negative resist; and 1st Impression, a nanoimprint template-based tool
for process characterization.
says potential investors look to see whether all three legs of his three-legged-stool
launch model are in place. The current environment in the semiconductor
industry, particularly following the worst years of the downturn in 2002
and 2003, "has had a tremendous impact on the ability of start-ups to
get financing. People scrutinize a lot more and are a lot more risk averse
concerns make it all the more important to investors that a newly hatched
supplier has the technology, the model, and the team poised and ready.
Depending on their appetite for risk, investors may prioritize these components
differently, Brisson notes. "It's really difficult to say that one is
more important than the other. It's important that you know how you're
going to get all three in place very quickly."
accomplishing this structural trifecta before "going through your
first round of financing. . .makes it very difficult for a start-up to
begin." The industry is capital intensive and "extremely detailed.
The industry spends a lot of time understanding the technology, characterizing
the behavior of the process and the technology, because it's under such
pressure to deliver yield and throughput. It studies all aspects of the
infrastructure of the fabrication process to an incredible degree, which
insists that "the projects that have staying power are the ones that
are being pursued because the investment dollars are out there. What it
does mean is that they're just not as easy to find as they used to be."
The pendulum, he insists, is swinging back from the position of "avoiding risk at all costs. . .to
a more balanced position of risk versus reward."
everyone agrees that investors have turned their backs on the semiconductor
space. An industry veteran, Jerry Cutini has seen his share of start-up
successes and failures. He cofounded the post-CMP cleaning tool firm OnTrak
Systems and has been an executive with Novellus. In 2002, Eshinui, a start-up
selling software for tracking spare- parts inventories, hired Cutini as
president and CEO, but the fledgling company eventually folded during
the industry's downturn.
is now president and CEO of Aviza Technology, which acquired ASML's thermal
division nearly two years ago, and in March 2005 announced a merger agreement
with Trikon Technologies, a Wales-based supplier of plasma etch and deposition
tools. The executive believes two issues dominate the matter of new launches.
and this is a general statement, getting funding isn't too difficult,
as there are both individuals and VC firms that are always looking at
this space. I can think of a number of new companies that have started
in the past few years. It's certainly down from the early 1990s, but it
shows there is funding available. Second, the real issue has changed from
securing funding to getting customer interest."
diverging fates of OnTrak and Eshinui are instructive, Cutini says. In
addition to a can't-miss CMP-related technology, the former company had
real customer pull. The latter, while drawing interest from "various parts
of the customer base," could not connect with "a driving need."
in different fabs expressed keen interest in Eshinui's software, "but
getting them to 'pull' or buy the product was not an easy proposition.
The point being, if your new product doesn't really solve a problem, you're
going to have trouble. Saying you have a better technology isn't enough.
You have to be in the unique position to address a problem in the customer
base and provide a solution that no one else can."
commercialization is very easy [when] the market is pulling you instead
of you pushing the market," agrees Nitin Deo, senior vp of marketing
for Ponté Solutions (formerly E-Z-CAD). As a new company, the Mountain
View, CA–based firm had a very smooth transition to the marketplace
precisely because it was "addressing the right problem at the right
fundamental lesson is that the successful start-up exists to serve the
customer's problems, he insists. "There is a problem first, and we have
a very innovative and robust software solution. If you have a solution
looking for a problem, it's really a hard sell."
its technological roots in embedded-memory design, Ponté understood
that engineers needed an earlier picture of potential yield-impacting
design problems than they were seeing. As chipmaking processes dip below
the 90-nm level, "designers are finding that they need to know what's
in their silicon, what's in their design, what is the design content of
their chips. And technology like ours, which gives them a very clear view
of what will happen when you actually manufacture the chip, is very, very
timely." Validation for Ponté's approach came from NEC Electronics,
which announced in early June that it will use the supplier's model-based
yield-analysis software with the chipmaker's own methodologies for analyzing
random defects in its fabs.
acknowledges that because it's a software firm, the company enticed investors
more readily than a hardware supplier may have. The amount of resources
needed to design software "is fairly low compared with any hardware company.
That's the traditional difference between software and hardware. Software
can be changed and customized fairly easily."
Harrus, technical advisor and venture capital expert with Metara, says
it's not enough that a start-up have the requisite breakthrough technology.
"The breakthrough has to be associated with a pain point for the
customer, especially in the semiconductor industry. . .You have to be
able to address and pinpoint where the customer is then willing to work.
The most difficult thing is to establish credibility."
more than five years old, Metara began as "a bunch of parts in Ziploc
bags," Harrus jokes. The founders of the in-line chemical metrology firm
determined that "the chemistry and the chemical baths in the process are
kind of the last area that is not being utilized to improve yields and
improve cost saving through scrap [wafers]," says Randy Clegg, the company's
vp of sales and marketing. Metara launched its new Sentry platform in
mid-June. The metrology tool is designed for real-time, noninvasive characterization
of process chemistries.
was worried about defects on the wafer, but they would send their chemistries
out to a lab with a turnaround time from four hours to as much as two
weeks. A lot of wafers can be jeopardized during that time," Clegg points
out. Clients processing huge wafer lots would discover that by the time
they received the lab results on the health of their chemistries, "they
were on to a new batch of chemistries."
to define success for a new company, Harrus replies rapidly: "Profitability,
absolutely." Shepherding the technology from the drawing board to the
boardroom means one thing. "I don't like sports metaphors, but to me it's
the salespeople who carry the ball the last five yards. It's your touchdown teamÉ. Very seldom
do the best technology and people beat a path to your door. It does not
rather than later, you're going to need a good sales team, insists Brisson
of Quantiscript. "Start-ups are initially driven by the technology, but
at a point in time you've really got to reverse that completely, and the
company has to be driven from a sales and marketing and product perspective.
The sooner you do that, the better."
says that the definition of success has changed. When OnTrak began back
in the early 1990s, success was typically delineated by a much-anticipated
initial public offering. "Today," he says, "I'd argue that there is little
to no chance of a start-up front-end equipment company to get to the IPO
stage on its own." The goal now is "to get purchased by one of the larger
Lam, who founded the plasma etch equipment company bearing his surname
in 1980, says an IPO for a fledging equipment supplier "is like graduating
from college or getting married. Unfortunately, when this is not available,
we all turn to mergers and acquisitions as a way to continue growing,
albeit under someone else's name."
"mentor capitalist" heads the David Lam Group, a high-tech consulting
firm. He was recently named chairman of the board of Qcept Technologies.
The new metrology tool supplier is marketing Chemetriq, an in-line inspection
system that measures chemical variation and uniformity on wafers to atomic-level
sensitivity. The tool is based on technology transferred from the Georgia
Institute of Technology in Atlanta, and Lam is quite excited about the
says any economic impact of the industry's shift into nanotechnology "will
be years away." Cutini says the opportunities in the nanosphere "are getting
harder to find. There are obvious materials changes that are nontrivial.
However, it's rare to find one solutions provider that can address all
the varying needs of customers' advanced manufacturing challenges."
Cutini doesn't see any major process modifications "until you get below
32 nm, then things will change pretty significantly again. So we might
be in a period of hibernation for start-ups. Anyone that has solutions
for the sub-32-nm realm won't have many customers that will buy products
[now], so there's a few years to wait."—JC
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