2003: Rising Investments Date:   Thursday , January 30, 2003 THE MEDIUM OF COMMUNICATION IS BECOMING richer,” says Danial Faizullabhoy, general partner at Walden International, a $2 billion fund and one of the heaviest investors in the semiconductor space. Faizullabhoy says he has spent the last year traveling to the Far East, looking at technologies driving media-rich devices. Walden has invested in Leadis Technologies, a Korean fabless company that develops color LCD driver ICs. “From the traditional 18 month-development cycle, this company has a process to bring a custom-made driver to the market in eight weeks,” says Faizullabhoy. The market, says Faizullabhoy, is very local and the company is showing all the right signs of bringing in good revenues. The fund seems to have invested in many verticals in the space. “We have some heavy investment in foundries in China, which is already showing signs of profitability. In fact, we are seeing increased investments in this sector, despite the market scenario today,” says Faizullabhoy. “Some of the areas that are interesting are in video, wireless and power.” Within the space, points out the general partner, niche-market product developers are doing well. “Once Bluetooth integration was hot, now it is no more a challenge. But technologies that can address a specific need and illustrate a viable market are bound to find funding.” According the the Walden partner, the recession is showing signs of reversing. The shake-out was on the horizon, says Faizullabhoy, and companies who survived have or will emerge far more resilient. “While we are investing actively, I would encourage startups to bring one important support to the table—a strong syndication that will help it stay afloat. Semiconductors take a long time to market, and we are urging companies to develop deeper pockets to tide over uncertainities.” Semiconductors being a capital-intensive industry, Faizullabhoy says the important thing is to know when to tighten belts and focus on streamlining revenues. “I echo Vin Dham’s strategy of building out of India. There is very good resource in design in India, and the potential to lead the Asia-Pacific markets is there. We are leveraging our India operations to capitalize on this,” says the Walden partner. The fund hasn’t invested in India on a sizeable scale, though. Edgar Masri, partner at Matrix Partners, is watching the video space keenly. “As video becomes pervasive, products in this segment will throw up interesting scenarios,” says Masri. Analysts like Raman Chitkara, global managing partner of the semiconductor group at PricewaterhouseCoopers, are buoyed by the rate of decline in VC funding that semiconductor-related ventures faced from 2000 to 2001; it was significantly less steep than the drop endured by an aggregate of other industries. Semiconductor-related investments fell 48 percent, to $1.5 billion, compared with a 63 percent drop in overall VC investments. Similarly, the number of semiconductor-related deals dropped 24 percent versus 45 percent overall, Chitkara said. “The implication is that, while we came down,” Chitkara said of the semiconductor sector, “we did not come down as sharply as other industries, and we are still significantly higher than where we used to be historically. We are making forward progress. It’s a clear sign of growth and expansion in the industry.” As the Chinese wireless markets and product portfolio explodes, heavyweights like Intel Capital are increasingly pouring capital dollars into wireless drivers. Sriram Viswanath, managing partner at Intel Capital says that the wireless market is bound to become extremely pervasive and initiate lifestyle-changing technology penetration, and encourages technologies in wireless—UBW, 802.11 and so on. And, for the most part, what venture capitalists look for in a potential investment has remained the same during the downturn—a market they can understand; a company that has a pull-product not a push-approach; company executives that understand the technology and company executives that understand their market—though the current market is a bit difficult to call. VCs appear to be shifting their priorities during the due diligence phase. During the Internet boom, innovative ideas and technologies were funded, with concerns over the management team’s ability to execute taking a back seat. In today’s environment, the integrity of company management will continue to be scrutinized closely.