Top Taiwan Venture Capital (TTVC), the largest VC management company in Taiwan with more than USD400m in invested capital, has announced a semiconductor-focused fund. Aiming to raise 800 million TWD in capital, the fund will especially focus on Taiwan’s IC design sector, given its asset-light nature, high gross margin and its recent growth. On average, the IC design sector’s price-to-earnings ratio has reached 30.
Thanks to its complete semiconductor supply chain, especially the large global market shares captured by the foundry TSMC and the assembly & testing firm ASE Group, Taiwan’s chip design industry got off the ground in a complementary environment, and has come second to the United States in terms of annual output value, according to Taiwan’s ITRI Industrial Economics and Knowledge Center. In addition, Taiwan’s IC design industry has already captured 20% of the global market.
Driven by the recent chip shortage crisis, the gross margins of Taiwanese IC design companies have risen as well, giving a boost to the sector. In the past, only big players like MediaTek could achieve gross margins nearing 50%, while smaller chip design companies in Taiwan generally had gross margins between 20-30%.
However, apart from MediaTek, most Taiwanese IC design companies are small or medium in size. Furthermore, Taiwan’s IC design industry has mainly focused on consumer electronics, PCs and smartphones, which have a lower entry barrier. Even though some IC design companies, including MediaTek itself, have sought diversification by entering automobile and data center markets, competitions from China have been growing, especially under its chip autonomy program spearheaded by a National IC Industry Investment Fund.
In light of the challenges, TTVC’s ambition is well-founded. According to TTVC, 65% of its fund will go to the IC design sector, 10% will go to semiconductor materials, while the rest will be funneled into equipment and other relevant applications. Between 50 million to 100 million TWD will be spent on each investment target, with the ultimate goal to have it listed on Taiwanese and U.S stock markets. TTVC itself has already invested in 28 IC design companies, with 18 of them currently listed.