VC's decision factor in semiconductor investment

Abstract

This thesis examines the relationship between the semiconductor industry and venture capital ("VC") industry in China and Taiwan. Taiwan has established an impressive semiconductor industry by encouraging high technology investment for the past two decades; on the other hand, Mainland China is currently emerging as a new and strong entrant with a huge domestic market and resourceful human capital as its support. In the past few years, most of the Taiwanese and Chinese companies were funded by the VC industry that fueled their expansion. Lots of successful investments were made and enormous profits were realized. Nevertheless, the industry environment remains very capital intensive and technology can be easily disrupted by new generations of wafer fabs, making intelligent investments in the semiconductor industry is unpredictable. From the perspective of the VC firms, this thesis first provides a general description of the semiconductor industry, its historical development, the current state of Taiwanese IC Design Industry and a Porter's analysis of the industry outlook. By interviewing the venture capitalists in the Asia-Pacific region, the thesis analyzes what decision factors VC firms must consider in investing in the semiconductor industry in China Lastly, the thesis analyzes which characteristics of the Semiconductor Industry/IC Design sector affect how VC firms invest, how the investment process differs when investing in a semiconductor case and how different members of the VC team affect the investment process. By comparing between a generalist VC and a specialist VC, this thesis seeks to determine which firm has a long-term competitive advantage.