Microstaq Scores Big Money from Good Energies
Earlier this month, eight years' worth of semiconductor development culminated in a DEMO God being awarded to Steve Booth, co-founder and vice-president for marketing at Microstaq. And his 15 minutes of fame are about to get a repeat performance. On Friday, Microstaq, which supplies an energy-efficient valve for air conditioning units, is expected to announce a $12.5 million funding led by Good Energies, a New York investment firm focused on renewable energy.
The second round of funding for the Austin (Tex.) company both proves that investment in clean energy startups is going strong and further proves that semiconductor investments are still attractive to investors. Booth helped create for Microstaq a type of semiconductor that adds computer intelligence to the process of pushing a liquid through a valve. Microstaq's valve is a type of semiconductor that uses a microelectromechanical system (MEMS). These MEMS devices are used to convert analog information such a temperature or sound waves into digital signals that can be processed by computers.
The resulting Microstaq chip will first appear in air conditioning units as a tiny silicon valve that shunts a refrigerant across an evaporator at the precise moment at which it will most effectively produce cool air. That computer-controlled precision should help conserve 20% to 30% of the energy used to run residential and commercial air conditioning units. Later versions of the valve will be aimed at the automobile and medical markets.
Boon for Air Conditioners
Good Energies Managing Director John Breckenridge says his company invested in Microstaq based on its potential impact in promoting energy efficiency in buildings. As Good Energies evaluated areas where big energy improvements were needed, air conditioning jumped out as a huge consumer of energy. Within the A/C unit, the cooling process governed by expansion valves had the greatest impact on how efficiently the A/C ran. That's the valve Microstaq replaces.
"We did not go looking specifically for a MEMS investment," Breckenridge said. "It just happens that a MEMS investment happens to be the single best opportunity to improve energy efficiency in A/C." As part of the funding, he will join Microstaq's board.
Other investors, meanwhile, are specifically betting on MEMS. Two weeks ago, Microfabrica raised $22.5 million in second-round funding led by Versant Ventures and Interwest Partners for medical MEMS. In July, Sand 9 scored an $8 million first round of capital for a MEMS-based device that replaces several components in wireless communications devices such as cell phones or headsets. Other deals include $19 million for motion-sensing MEMS maker InvenSense in April.
Easy to Sell
One reason MEMS are attractive to VCs is that they can replace less energy-efficient or more expensive parts inside of existing machines and devices. Their value is clear, so they're easy to sell. Also, most are targeted at high-volume applications such as automobiles, industrial markets, and cell phones, giving MEMS makers a large market. Another reason VCs aren't afraid to bet on MEMS is that most of them can be made at older fabrication plants at a lower cost than advanced semiconductors requiring the most up-to-date technology. This keeps the costs of designing and building a MEMS-based device in line with what the market is willing to pay.
Plenty of large chipmakers are in the MEMS market, with Hewlett-Packard (whose MEMS are used in its ink jet printers) and Texas Instruments leading the way. However, new innovations in materials and a new way to build up a MEMS device as Microstaq has allow a startup an opportunity to make it big. The total MEMS market was $8 billion in 2008, up from $7.1 billion the year before, according to Yole Development, a French research firm that tracks MEMS.
The ubiquity of mechanical processes that can be improved with MEMS—from replacing expansion valves with chips, as Microstaq does, to adding accelerometers to iPhones—means MEMS will increasingly become a part of consumers' lives, whether they know it or not. They'll make video games more fun as they do in the Nintendo Wii, or prevent automobile crashes with chips governing electronic stability control, but do it in ways that we may never notice. Luckily, VCs are keeping their eyes open.