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Venture fund seeks a few good chips

The chip industry has seen little interest from investors this year, but Tallwood Venture Capital has raised a $180 million fund to invest in semiconductor companies.

Tallwood Venture Capital plans to announce Monday that it has raised a $180 million fund to invest in semiconductor companies.

That's good news for the chip industry, which has seen little interest from investors this year. The Philadelphia Semiconductor Index, for example, has fallen more than 60 percent from its 52-week high in March.

Not only has investor interest in semiconductor companies lagged, but venture capital firms have not been creating many new funds, said John Gabbert, research director with Venture One. Investments into venture funds fell to $8.3 billion during the first half of this year, down 71 percent from the same time last year, according to Venture One, a San Francisco-based venture research firm.

Nonetheless, the new fund, called Tallwood II, plans to invest in companies involved with semiconductor chips, components, tools and materials, said Ron Yara, a general partner with Palo Alto, Calif.-based Tallwood.

"We're only doing semiconductors--no software, no systems," Yara said. "The reason for this focus is this is the industry we grew up in, the industry we worked in, and the industry our managing partner Dado (Banatao) invested in, prior to starting Tallwood."

Tallwood, a two-year-old firm, plans to invest in companies' first round of funding and continue as an investor through subsequent rounds, said George Pavlov, another Tallwood partner. Over the life of a company, Tallwood plans to invest an average of $10 million.

Axiom Microdevices, a semiconductor components company, has already received a $3.2 million investment from Tallwood II. The funding was part of Axiom's $8 million first round.

"The traits we look for in an investment are technology, team and market," Yara said. "Our priority always starts with technology first, because it's so difficult to do. And the management teams we invest in are always heavily weighted towards engineering."

Tallwood II marks the first time the firm has raised money from outside investors, rather than from its managing partner. Stanford and Harvard universities, Credit Suisse First Boston, Grove Street Advisors, Spur Capital and Vertex were some of the investors in the new fund. Tallwood also sought to diversify its sources of investment and received overseas funding from VenCap International in England and GIC in Singapore.