by Clifford Carlsen
[Posted on January 28, 2008 - 5:29 PM]
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DiggSemiconductor design startup Intrinsity Inc. said Monday it raised $31.5 million in a fifth round of venture capital, a strong endorsement of the company's three-year transition into a "chipless" company devoted solely to licensing its intellectual property.
Late-stage investors Goldman, Sachs & Co., Altitude Capital Partners and Northwater Capital Management Inc., all of New York, joined the round, which also included previous investors Adams Capital Management of Austin, Texas, and Hillman Co. of Pittsburgh. The deal brings total investment in the 11-year-old company, which is based in Austin, to nearly $100 million, and will allow it to expand existing licensing programs and continue developing design tools and proprietary code for creating ultra-fast programmable chips, primarily for the wireless telecommunications infrastructure industry.
Rob Kramer, managing partner at Altitude, said the firm was attracted to the deal based on the strong royalty agreements Intrinsity has in place for licensing its high-speed, low-power embedded processor cores, along with the company's opportunity to generate additional licensing business. Altitude is a three-year-old firm that invests solely in companies with an IP-licensing model, and Kramer said Intrinsity has quickly amassed a number of long-term deals that ensure a healthy revenue stream, even as it continues to develop new technology.
"We are not a venture investor--they have been around 10 years and already are generating significant revenues," Kramer said. "Our focus is on IP-centric assets, and they have a very extensive patent portfolio and a number of very significant customers that will give rise to substantial royalty revenues."
Kramer said Altitude's due diligence focused on the company's existing licensing deals and on its long-term potential.
Intrinsity was founded in 1997 to develop fast, low-power chips for wireless applications. The company did some design work for others from the beginning, but introduced a 2.2 GHz test chip of its own in 2001. After initially trying to market the product, the company realized there was greater demand for the IP associated with the product's design, and opted to switch its business model to a licensing model.
Linley Gwennap, principal analyst with chip design market researcher Linley Group in Mountain View, Calif., said IP design companies, or chipless chipmakers, including Mips Technologies Inc. and ARM Holdings plc have succeeded in creating structures that generate long-term cash flow to support additional development, while saving on manufacturing and marketing costs. But he said those companies have relied on huge sales of single products to support sideline businesses, noting that it is more difficult to build a company based on a broad line of IP products.
"The problem with the IP sector is that there are a lot of different kinds of IP," Gwennap said. "Intrinsity's model is a little fuzzier because it has designs to make things go faster and use less power, but it's not a single product."
Mike Gehl, Intrinsity's vice president of product development and marketing, said the new funding for the company, which was characterized as largely self-sustaining, will go primarily into two areas: research and development for tools for increasing chip speed, and products to help engineers design chips.
Intrinsity did not use an outside financial adviser in raising the round, and had legal work on the deal from Mike Dunn of Phillips & Reiter PLLC in Austin. Investors were represented by Howard Stilko of Kramer Levin Naftalis & Frankel LLP in New York.
