What's behind the boom in automotive semiconductor startups

A slew of semiconductor startups are gaining traction in the automotive industry, some of which even have funding from automakers and suppliers — a development that signals a major shift in this space.

The big picture: Startups hoping to enter the automotive chip market used to encounter skeptical manufacturers and an industry that frowned upon cash-poor startups. But demand for innovation in connectivity, sensor technology and processing capability has opened the field up for them.

History lesson: Car makers have historically preferred to work with established suppliers such as NXP, Renesas, and Infineon due to trust in their quality, reliability and innovation roadmaps.

• Semiconductor startups often struggled to obtain the funding required to scale, as VC firms preferred less capital-intensive industries with faster return on investment.

What's happening: Recent developments, however, have contributed to an increase in automotive semiconductor startups, such as Geo Semiconductors, Autotalks and Graphcore.

• Automakers have an eye towards connected, electric, and autonomous vehicles, which will require breakthroughs in connectivity, sensor tech and processing.
• Meanwhile, the traditional automotive industry is eager to keep pace on technology adoption with disruptive players such as Tesla, Nio, and Waymo.
• The breakout success of a few bellwether startups like Mobileye has encouraged potential investors and partners as well.
• Out-of-pocket costs associated with getting new chip solutions to market have dropped, too, thanks to improvements in design methodology, intellectual property reuse, and the support of partners including in-kind services.

Yes, but: OEMs still maintain stringent quality and supply reliability requirements, which can be challenging for fledgling companies with limited financial resources to meet.

What we're watching: Ultimately, the biggest test for any semiconductor startup now may not be what its technology can do, but rather whether its hardware and software designs pass the stringent verification and validation needed to go into production in vehicles.

Drue Freeman is an automotive industry consultant, adviser and investor and a former SVP of global automotive sales and marketing at NXP, a semiconductor supplier. He has invested in automotive semiconductor startups including Geo Semiconductors.