Investing in semiconductor start-ups: Time to double down or hold tight?
Silicon is like sand… it gets everywhere
The recent global semiconductor shortage has illustrated just how dependent society has become on these wonders of science and engineering. With chips being used in everything from cars and computers to washing machines and bicycles, the COVID related supply chain issues are believed to have taken a full 1.0% off of US GDP growth in 2021.
And while it seems that semiconductor chips couldn’t possibly have an even bigger impact on our lives, the Foresight Williams Technology Fund (FWT), a joint venture between Foresight Group and Williams Advanced Engineering (WAE), strongly believes that the impact and reach of these devices is still underappreciated. With recent advances in open-source chip design tools and a growing ecosystem of early-stage semiconductor businesses in the UK, we are seeing an exciting generation of start-ups looking to exploit the benefits of semiconductors to improve the way we live, move and communicate.
We believe these companies represent exciting investment opportunities for the FWT fund and are ones where our unique offering can add real value. Semiconductor companies which operate using a ‘fabless’ business model are able to grow in a capital-efficient way and have the potential to generate out-sized returns when their technology is distributed through global supply chains. Meanwhile, the complex technical, project management and intellectual property challenges of designing a chip share many parallels with the cutting-edge electrification and engineering projects undertaken by WAE. Finally, WAE’s extensive network within the automotive, aerospace and defence sectors yields many early-adopter customers for these start-ups, helping to accelerate their commercial traction.
This investment thesis has now started to pay off. Following on from FWT’s exit of Codeplay in June 2022, which generated a 15.7x return, we are pleased to announce the successful acquisition of Flusso for £28m. Flusso’s core technology, the world’s smallest flow and environmental sensor, has applications across a near-infinite range of commercial and industrial products. During FWT’s investment period, WAE engaged with Flusso to explore using the technology in high performance applications to measure fluid flow-rate parameters. This validation of Flusso’s technology helped to make Flusso an attractive acquisition target.
But Flusso is just the first of several exciting semiconductor companies in the FWT portfolio.
Cambridge GaN Devices is leveraging the attractive material properties of Gallium Nitride (GaN) to develop more efficient power devices. Its products promise to reduce the power consumption of a range of products from laptop chargers to EV chargers.
Forefront RF is taking a fundamentally different approach to designing RF front-end modules for mobile phones. These are the components which home in on specific, very weak signals in the increasingly noisy radiofrequency spectrum to enable a user to make calls and send messages. The challenge they are solving is analogous to hearing a whisper while stood next to a jet engine… FWT is continuing to support Forefront RF to accelerate the technology development.
Zero Point Motion is redefining the long-held belief that chip-scale accelerometers, such as those in mobile phones, are inaccurate. By using advances in silicon photonics, the Company’s technology provides an order of magnitude increase in sensitivity with minimal increase in device size. Zero Point Motion will be raising a Series A round in 2023 and is already seeing excellent results from its prototype chips.
These are just a few of the great companies we have chosen to support, hopefully demonstrating both the hugely diverse applications of semiconductor devices, and the depth of semiconductor expertise in the UK.
But you may think “why are you investing in semiconductors when even the biggest companies in the world are struggling to get hold of chips?”. During moments like this it is always worth taking a step back and reminding ourselves that chip fabrication has consistently swung between over and under supply since the industry’s creation over 60 years ago. However, throughout these cycles, chip design companies which develop cutting edge IP and world-leading know-how have consistently driven innovation and enabled paradigm shifts in the way we live our lives. For this reason, we at FWT are always looking out for the next disruptive semiconductor technologies.