Wanted: A certain kind of chemistry

If you’re an investor who’s been traditionally priced out of the semiconductor industry, opportunity is about to come knocking. And you might find the price attractive.

The traditional method of creating chips–laying down transistor lines on silicon wafers using light–is getting harder, while the demand for faster, smaller and cooler devices continues to soar.

Meeting these expectations will require ever-smaller transistors packed into tighter spaces at a price the market can afford. In other words, it will take the continued enablement of Moore’s Law.

Doing so, however, is becoming an increasingly complex effort. And as a result, chipmakers are shifting a portion of their spending from how devices are made to the very materials used to make them.

Some of the most exciting advances in materials science are coming from companies that develop specialty chemicals and gases, enabling chipmakers to shrink the size of future transistors.

What sets these companies apart from a venture-funding standpoint is that they have financial profiles that look more like conventional startups than multi-billion dollar semiconductor equipment investments.

With chipmakers eager to find small companies with the best new materials, the near-term opportunities in the semiconductor arena look to be more about molecules than manufacturing equipment.

High-tech plumbing problem

To understand the problems facing chipmakers, think about the plumbing pipes in your house. Every day you move water through them. But it’s no big deal. You’ve got plenty of space, unless you have to increase the volume of liquid or shrink the size of the pipes.

If you’re a chipmaker, you have both problems.

That’s because, despite the many capabilities chip customers have today, they want even more. They want to shoot panoramic HD video on a phone without draining a battery, run a server farm with minimal cooling, or grab heart-rate data from a sensor buried in the zipper of a rain jacket.

And these attributes–greater performance, less power draw, and smaller size–require more transistors in smaller spaces.

It used to be that chipmakers could shrink the size of transistors by using higher-precision equipment. However, transistors are now 10 times smaller than the wavelength of light. You can’t simply go out and buy a piece of equipment to make them tinier.

The reality is we cannot get what we want from transistors without new materials. Fortunately, chipmakers will soon be able to select molecules that are compatible with standard silicon wafers and have the potential to shrink the size of next-generation transistors.

To use the plumbing analogy, it’s as if these new materials will enable you to shrink your pipes, carry the same volume of water, and make that water run even faster.

From outside to inside, quickly

The companies driving this next wave of materials science hail from well outside Silicon Valley. Scattered across the globe, they tend to be clustered around universities or found in business settings that make it easy for them to collaborate with and draw on world-class chemical and materials research talent.

Instead of cubicles, founders and executives at these companies spend their days in labs. They might be synthesizing or stabilizing a new compound, or working to remove microscopic impurities that could reduce a transistor’s efficiency.

For investors, these opportunities should look familiar. The financial profile of a materials company is much more like that of a typical startup and far less capital intensive than an equipment company or chipmaker.

What’s different, however, is a symbiotic relationship at play: Chipmakers need to experiment with new materials early to understand if they can work. Chemical materials companies, meanwhile, need manufacturers to validate their results on a mass scale.

Thus, startups with promising materials could very well find themselves moving quickly from outside the walls of a chipmaking company to the inside. And the speed of that movement underscores a key change in the way the industry is now working.

Before the beginning

Over the last decade, chipmakers have deepened their materials research capabilities and pipelines – both internally and externally. The reason is simple economics.

Consider a new mobile phone. Its processors have to perform significantly better than, and as reliably as, the prior generation. The manufacturing “recipes” for these processors are created many years in advance of when the first chip is shipped to a customer.

Therefore, the least expensive time to try larger numbers of new materials is at the research phase, when chipmakers can fail early without investing too much. That work lets them narrow the field of viable materials candidates before the formal development stage begins. The development phase, in turn, is often the best time to identify investments in any external companies whose materials could be chosen for high-volume manufacturing, the final step in the process.

To keep Moore’s Law and all its attendant benefits on track, expect to see chip companies scouting early and globally to find new materials. If you’re a company with something to offer – and a funder backing that effort – there’s a good chance you’ll draw an interested audience.

Intel Capital Managing Director Keith Larson invests in semiconductor equipment, materials, packaging, EDA tools, novel memory as well as sensors, displays, MEMS, robotics and wearables.