2021 was a record-breaking year for the semiconductor industry. Rising demand driven by digital transformation, the emergence of new domains such as Blockchain and Metaverse drove new needs, challenges caused by supply chain, and abundance of capital all came together to create a new landscape with space for startups that can think outside the box.

SemiSummit TLV 2022

Viola’s second annual SemiSummit TLV, co-led with Intel Capital, gathered corporate leaders, entrepreneurs, and investors to discuss the future of this industry. Speakers included experienced players in this world, such as serial entrepreneur Avigdor Willenz, Bilic Hrvoye – CEO, Annapurna Labs, Eyal Waldman, former CEO of Mellanox, Michael Kagan, CTO of Nvidia, Russell C. Ellwanger, CEO of Tower Semiconductor, and CEOs of leading startups in the space. Viola’s own Zvika Orron kicked off the summit by providing the VC perspective on the transformations the market has faced in the last year and what they mean for startups.

The Present and Future of the Semiconductor Ecosystem

The semiconductor startup ecosystem had a year of remarkable growth despite the global chip shortage.

On the one hand, we saw a significant rise in demand for chips throughout the globe, due to growth in 3 categories: datacenters, automotive and consumer electronics. This explosion in demand was mainly driven by the acceleration in digital transformation that led to unprecedented data usage. It’s no surprise then that worldwide semiconductor revenue increased by 25% in 2021, reaching above $580 billion.

On the other hand, Covid-19 lockdowns and restrictions halted production, resulting in a bottleneck in the entire supply chain – from production and assembly to shipping.

Further, tensions between the US and China have produced two separate technological stacks as each country continues to buy more and more from its own, limiting both supply and market potential.

On another frontier, political pressure continues to be placed on Taiwan due to the sensitivity of the chip shortage. We see an example of this with Taiwan based semiconductor manufacturing company TSMC looking to begin manufacturing fabs in Arizona. TSMC announced its plans to begin the construction of a $12B chip fabrication plant over 2 years ago. However, with agreement in the details of the CHIPS Act resulting in a standstill, so did TSMC’s plans for construction.

This Senate-passed bill is set to provide $52B in subsidies for US chip production — in response to the chip shortage and competition with China.

Companies like TSMC and Apple alike wait in anticipation for Congress to pass the $52B bill, trusting that they can begin production by 2024.

Shortage of Chips; No Shortage of Capital: Semi funding in Israel and Globally

With this supply and demand conundrum in mind, last year saw unprecedented funding for Semiconductor startups across stages – Global funding of Semiconductors reached a record of $16B (almost double the amount of 2020). According to Viola Data, Average deal size was higher than ever, standing at $19.9M for early-stage rounds and $46.1M for growth stage rounds.



In Israel, the Semiconductor ecosystem enjoyed these trends as well, with funding more than doubling the previous year, reaching $1.1B. Israel also held strong as the third-largest hub globally in the semiconductor space in terms of funding, closing the gap with the US for the second year.



Will this trend continue in the coming years?

Semiconductors are going to be the essence of the digital revolution, and data shows 70% of growth will be driven by three main sectors – automotive, datacenter and wireless. But – not without challenges.

4 Industry Trends to Look Out For in the Semi Space:

1. Many of the large players in the chip market are trying to prove they can offer better, generic solutions than Cloud giants by utilizing M&As. They are ensuring their supremacy in the datacenter offering by acquiring early-stage/sometimes even pre-sales companies with highly advanced technologies. Case in point, AMD’s recent acquisition of 5-year old startup Pensando for $1.9B.

What this means for startups: Chip giants are looking to stay ahead of the competition by acquiring cutting edge tech that will allow them to get more performance for less power and price and supercharge their efficiency. Moreover, as electricity prices continue to rise due to the ongoing war in Ukraine, price performance is becoming crucial. We expect to see more early stage acquisitions that will allow these massive players to stay ahead of the curve.

2. Tech Giants across consumer electronic, automotive, Cloud, and networking industries are all vertically integrating their own chips. Companies like Tesla, Meta, Apple, Google, Huawei, Amazon and Microsoft are building internal teams to develop their own solutions, with the goals of optimizing chips to their specific needs and cutting down on the amount of chips needed to ease the bottleneck in the supply chain.

What this means for startups: Selling chips to the tech giants is going to be much more challenging going forward, especially in sensitive areas that require heavy software integration. Startups will find themselves pitted against the concept of NIH (internal suspicion against anything “not invented here”) and will need to demonstrate significantly better performance as well as ease of integration. Clients like these may also require more customization to address their specific needs.

3. Chip giants are putting their resources into the acquisition of large companies that provide complementary solutions. This is what drove Broadcom to acquire VMWare in $61B and AMD to acquire Xilinx in $49B.

What this means for startups: As the chip giants are putting their emphasis and resources on post merger integrations (PMIs), they may be less focused on innovation. This opens up room for small startups to come up with revolutionary and innovative architecture in the coming years.

4. As China and the US strive to decrease their dependency on each other, both governments are pushing to build supply chain resiliency programs, including government subsidies to build at-home solutions, such as Intel’s new FABs. Still, China’s weakest link in the chip value chain are EDA (electronic design automation) and SME (semiconductor manufacturing equipment) largely dominated by the west. Nevertheless, they’re steadfast in closing the gap – an additional $2B fab construction projects took place in 2021, totalling $26B.

What this means for startups: For Israeli startups, positioned between East and West, this poses an interesting opportunity. While the US is often preferred as a 1st customer, China is a compelling market with ample room for growth.

Is the Semiconductor Industry in Between Innovation Cycles?

In 2021, we saw a sizable spike in funding for Mega and Growth rounds, yet, there was a sharp decrease (from $255M to $100M) in funding for early stage. It seems we may be at the end of an innovation cycle and we’re beginning to enter into a new one. The industry may have hit a wall in terms of investors’ appetite for long-term, money-intensive companies. Of course, the impact of the public markets on the private market also needs to be taken into account.



However, there is room for optimism. This makes way for the next wave of innovation, including trends like the Metaverse, which is beginning to open new exciting opportunities for new semiconductor designs, as well as the massive deployment of 5G, significantly increasing the number of IoT devices and edge capabilities. With this in mind, we are left to ponder the question, “what’s next for Semi startups?” .

For the full Deck by Zvika Orron:



Watch the SemiSummit2022 recap video: