CSCO Cisco Systems Inc

By Don Clark 

Most venture capitalists have stopped backing semiconductor companies. But a Silicon Valley chip maker on Monday is announcing its eighth funding round, with Cisco Systems Inc. disclosing its role as a longtime backer.

The $37 million infusion is being raised by Aquantia Corp., a 10-year-old company that specializes in networking chips. The San Jose, Calif., startup has been talking for more than a year about the possibility of a rare initial public offering in the chip sector.

"Our investors have been patient up to this point," said Faraj Aalaei, Aquantia's president and chief executive officer. He said going public "has always been the vision of this company."

Investors in the current round include Cisco, Credit Suisse's Direct Equity Partners, Walden Riverwood and Globalfoundries Inc., the chip-manufacturing service. The new round takes Aquantia's total funding to $199 million. Prior investors include Greylock Partners, New Enterprise Associates and Lightspeed Venture Partners.

Many venture-capital firms have given up on the sector because of the increasing costs of designing chips, plus the fact that startups in other sectors tend to produce a faster payback. PricewaterhouseCoopers LLP counted 12 semiconductor IPOs in 2014--10 of them by Chinese companies--compared with 47 for Internet services and 35 for software makers.

Aquantia has attracted some well-known venture firms, as well as investments from chip makers Intel Corp. and Xilinx Inc.

Cisco hadn't previously discussed its involvement in Aquantia, though the networking equipment company said last week it been an investor since Aquantia's initial round in 2005. The company has also used Aquantia chips in its switching equipment, said Rob Salvagno, a Cisco vice president of corporate development who heads its investment arm.

Cisco, which designs some of its own chips and buys others from external suppliers, counts about 10 chip companies among its roughly 100 investments, Mr. Salvagno said.

In Aquantia's case, he said, Cisco was attracted by technology to boost the speed of moving data between servers in a data center tenfold, through chips sending 10 gigabits of data a second over copper wire at distances of as much as 100 feet. The technology was designed to replace one-gigabit links.

"It was extremely complicated technology and was very power-intensive," Mr. Salvagno said. "We believed that Aquantia had an approach that solved the issues."

Aquantia also has developed chips to accelerate the speed of transferring data from Wi-Fi access points to corporate servers, Mr. Aalaei said.

The company's chief competitor is Broadcom Corp., the big chip maker that recently agreed to be acquired by Avago Technologies Ltd.

In addition to the funding, Aquantia said Lip-Bu Tan, a prominent figure in the chip industry, is joining its board of directors. He is chief executive of Cadence Design Systems Inc., which makes software for designing semiconductors, as well as the founder and chairman of the venture-capital firm Walden International.

His firm is one of few that hasn't shied away from making more bets on chip companies. "Semiconductors are a very important foundation," Mr. Tan said. "I decided to double and triple down on my investments."

Write to Don Clark at don.clark@wsj.com

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(END) Dow Jones Newswires

October 05, 2015 00:14 ET (04:14 GMT)

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