According to the MoneyTree Report, venture capitalists pumped in $1.5 billion into the semiconductor space during the first three quarters of 2006 as compared to $1.4 billion financing during the first three quarters of 2005. This increase shows VC’s new ventures in this mature sector.

In the past few years, VCs invested in companies if the entrepreneurs had created an incremental improvement in an existing technology or product. Now, VC’s say, entrepreneurs must display an exponential improvement—a great leap over what’s available in the marketplace. If one were to look at the pattern of investments, VCs are looking for niche areas within the semiconductor space.
‘Niche’ being the key word, Vijay Parikh, Managing Principal, Global Catalyst Partners, is betting his money on Micro-Electro-Mechanical Systems (MEMS). He observes that many of the products found at this year’s Consumer Electronics Show (CES) utilized MEMS. What excites Parikh is that MEMS enables entrepreneurs to focus on niche technologies , along with low-risk manufacturing and affordable up-front expenses.

As an enabling technology that allows the development of smart products, MEMS is promising to create a complete system-on-a-chip by bringing silicon-based microelectronics with micromachining technology. MEMS are small mechanical movements embedded in a semiconductor that acts as the specialized sensors to the microelectronic integrated circuit, which is opening a new realm of chip designs and applications.

One of the major applications of MEMS observed by Parikh is the HDTV products and projectors; Texas Instruments being a strong contender in this field today with its DLP (Digital Light Processing) technology. DLP chips —matchbook-size devices that reflect light off millions of hinged micro-mirrors to create images on a TV or projector screen — are one of the most successful MEMS ever developed, with more than 10 million shipped for TI since 1996. Parikh is intrigued by how TI leveraged this unique capability to its advantage. “Products built around MEMS will give large returns,” he says, “It also allows you to be differentiated in the marketplace.”

MEMS also finds application in medical electronics. Corey Mulloy, general partner, Highland Capital Partners considers implantable hardware an ideal target market, since it can exploit recent advances in low-power wireless chipsets, materials, and MEMS. A device designed to monitor a diabetic patient, for instance, might trigger a bedside alarm for spikes in blood sugar levels instantly sending continuous data to a doctor.