SA国际传媒

Editor鈥檚 note: This is Mergers & Money, a monthly column by Senior Reporter Chris Metinko that covers dealmaking in the enterprise tech space.

As the chip shortage continues to disrupt different sectors鈥攑erhaps most notably automotive鈥攊nvestors have flooded money into the design and processing of chips at a never-before-seen rate.

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This rush to invest also comes at the same time more tech giants have unveiled plans to design their own chips鈥攕omething that likely is not a coincidence.

While venture funding for U.S.-based companies connected to the semiconductor industry shattered its previous record back in April–after Palo Alto, California-based hardware and integrated systems developer closed a $676 million Series D at a $5 billion-plus valuation鈥攇lobal funding set new highs last month, according to SA国际传媒 data.

In August, total venture dollars poured into the sectors surpassed last year’s record of $3.4 billion. Semiconductor companies, which can run the gamut from chipmakers to design firms to hardware developers, now have raked in more than $3.7 billion in 85 deals to date this year.

Both U.S. and global investment took their biggest investment strides in the second quarter, with each seeing $1.1 billion and nearly $1.7 billion invested, respectively.

The tie-up

Not much of that may come as a surprise to those who follow the news. The current chip shortage has rankled many industries, as more connected devices and emerging sectors like robotics mean an increase in demand for chips. Add on top of that the current COVID-19 pandemic wreaking havoc on many supply chains.

There are also traditional industries that never needed chips before but now鈥攊n a connected society鈥攏eed them just as much as a smartphone or laptop maker. The automotive industry provides a perfect illustration of that. Just last week, consulting firm the industry $210 billion globally in lost revenue this year, up from its estimate in May of $110 billion.

Concerns in that industry caused the White House to with large car manufacturers, tech companies and chipmakers to discuss the situation.

Big tech looks to chips

But that current investment also comes as the largest tech companies in the world all have made news in recent months about designing their own chips. That began last year when announced its new M1 chips for its devices.

Since that announcement, others have joined the party to design their own chips. In March, it was that is developing its own networking chip. And last month, unveiled chips it had designed at its AI Day for its new high-speed computer, Dojo.

Just this month, emerged that is getting close to rolling out its own processor for its smartphones and Chromebooks.

That鈥檚 to say nothing of other companies such as , which spoke of its interest in designing its own chips , and could be interested in its application for its much ballyhooed virtual reality plans.

Dealmaking

Investors undoubtedly see the opportunity in the current chip shortage but, just as assuredly, venture capitalists see the plans of these large tech firms and the possible big M&A exits that could await some of these recently funded companies.

The money flooding into the semiconductor industry right now is not to build new, modern foundries鈥攚hich takes years and billions of dollars鈥攂ut is more focused on chip design, as the industry strives for more optimized chips. That also is exactly what these large technology companies are looking for: New and better-designed chips that can cut down on the amount of chips needed, the power they use, and possibly ease some of the tension currently on the supply chain.

So far this year, nearly a dozen venture-backed semiconductor companies have been bought, with the most notable deal easily being 鈥檚 acquisition of聽 Santa Clara, California-based for $1.4 billion in January. While the number of deals is still relatively small when compared to other big tech sectors, it already represents the most in any year since 2017, which witnessed 14.

None of this is to say Apple, Amazon and Facebook will start buying up chip designers and processor developers next week, but investors look for optionality of exits when putting money down. The semiconductor space likely has felt that on the negative side for years, with companies in the sector seeing a lack of interest from the public market and only so many strategic buyers on the older chip landscape.

Now with so many of the big tech players joining that realm and eyeing a chip all their own, VC鈥檚 seem to be putting their money exactly where they believe many of these companies will too.

Methodology

Semiconductors funding numbers include pre-seed, seed and all venture rounds.

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