Lam Capital and the Future of Investments for Semiconductors

0:09 | John Cole
Welcome to Circuit Talk: Funders and Founders. I'm John Cole, Senior Manager on the semiconductor team at MITRE Engenuity. We are a nonprofit dedicated to solving problems for a safer world. Our semiconductor team is hard at work meeting the nation's challenges around semiconductor breakthrough technologies and the CHIPS Act. Circuit Talk: Funders and Founders is part of MITRE's Circuit Talk podcast and video series. And it elevates the revolutionary disruptive work being done by semiconductor entrepreneurs and investors. This is an exciting time to be working with semiconductor startups. The nation is waking up to just how critical they are to our national and economic security. Today we're talking to Faran Nouri. Faran is a vice president at Lam Research. She's also a founding member and Managing Director of Lam Capital the corporate venture arm of Lam Research. Faran has had a fascinating career in semiconductors as an engineer and entrepreneur and now an investor. Her career has touched almost every corner of the semiconductor industry and her journey has taken her to the giants of the semiconductor industries such as Analog Devices, HP, during their heyday VLSI, Applied Materials, Lam Research. Over her career, her research has helped produce 26 patents in over 60 peer review papers. She earned her BS and her master's in electrical engineering at UC Boulder and earned another MS in management at Stanford. Welcome Faran.

1:34 | Faran Nouri
Thank you, John, thank you for this generous introduction. Glad to be here.

1:39 | John Cole
Great to have you here. So you've had this enviable career that I just tried to shed some light on and outline a little bit starting at HP, you know, and then eventually founding Lam Capital. Can you tell me more just a little bit about your your journey to where you are now at Lam Capital?

1:55 | Faran Nouri
Yeah, it's it's a long story I, as you mentioned, I got my electrical engineering, BS and MS at University of Colorado. During that time, I got really interested in semiconductor industry, I did an internship at HP and I loved everything about even, even suiting up and go into the fab. Then I just really, as soon as I could get myself to Silicon Valley, I got myself to Silicon Valley, which at the time in the 90s had lots of fabs there were a lot of manufacturing, right in Silicon Valley. And by the end of that decade, actually, a lot of those fabs had left Silicon Valley and outsourced to, to Asia, the story we all familiar with. So around 2000, I made the decision that if I wanted to stay in this industry, the part that was going to stay was going to be the semi capital equipment, which is really what has remained in the country and where we are still leading. So I joined Applied Materials. Again, very long story. By 2011, Moore's Law was coming to an end, and it seemed like a grind to get, eke out more performance out of transistors, which was my life at the time. So I went to business school full time to reinvent myself. And in 2014, when Lam was looking to start its corporate venture arm, I thought that was just a perfect combination of my exposure to the startup world, the business background, newly acquired business background and my domain expertise in semiconductors. So joined Lam and got Lam Capital off the ground. So that was a very long story.

3:51 | John Cole
Yeah, that's great. So Lam Capital, corporate venture capital group, you mentioned that. Can you explain, for all the entrepreneurs out there, how investment from Lam Capital is different from a regular VC and what you can expect from a corporate venture group?

4:05 | Faran Nouri
Yeah, corporate venture groups are strategic, by definition strategic to the mothership. And there is quite a range between amongst the corporate venture groups, some of them are highly tied to their mother company. That's the case for Lam Capital. We're highly strict we only invest in what's strategic to Lam. In comparison an institutional investor invests in a company to make money. So the motivations are very different - while they might invest well, they only invest to make money. We invest to see a given technology or a product or capability developed. So, that different mindset motivates the investors differently. In the case of corporate venture arm, when we find a technology that may be strategic to Lam in some way, upfront, we might take a little longer to do due diligence because we know what we want, we're experts in the domain we invest in. So in that sense, that may be the initial engagement may be a little lengthier, we tend to be more active investors, we don't invest and walk away from the investment, institutional investors get active too, but their objective is making sure they optimize for an exit, be optimized, we may be optimizing for creating a supplier for us, or being a customer to this company or a partner or so that is how the engagements are different. And for an entrepreneur, each, the entrepreneur should always know, whoever is going to be on their cap table, what their motivation is, and how they align with them.

6:01 | John Cole
That's a great, that's a really great point. And I'm sure that you provide a lot of portfolio support and other interactions. But why, if you're an entrepreneur, why is it critical? Maybe an entrepreneur in the semiconductor space? Why is it critical to get Lam on your cap table?

6:16 | Faran Nouri
When we come in, and we're on a cap table, I think we bring a lot of credibility to the company. And we have often watched that when we come in, the financial investors see that because they know we know this space, and we do deep diligence before we engage. And then after we invest, we often have some form of partnership in order to develop that technology. So financial investors find that very attractive, and also ultimately, a startup needs to have customers - semiconductor industry is is notoriously difficult for a startup to break into. And so, and they their only way to break into such a consolidated industry is through these JDAs and proprietary access. So we developed this win-win JDA's with our portfolio companies. So in that sense, that combination, actually, if I was an entrepreneur, I probably want a combination of corporate venture investors as well as financial investors. So to bring that kind of diversity to the board and to the company.

7:35 | John Cole
Yeah. That's interesting. So can you give us an example of something that you're you're investing in these days, or what sort of startups are looking for?

7:43 | Faran Nouri
Yeah, we we invest in very high level, anything that might make our tools better our manufacturing process flows, better design of our tools, support our tools, our supply chain more agile, and, and differentiated. So one level below that we invest in subsystems that might go into our tools, and bring differentiation we invest in software like AI tools that may help us design our tools better. We've invested in a number of additive manufacturing companies to develop suppliers that are, can do things that conventionally are not achievable. We invest in what we call industry, four o, or digital manufacturing, because as we want to transition our own manufacturing, to digital manufacturing along the way, we need to access a lot of technologies that are developed outside labs. So those are just some examples of things we were looking at.

8:52 | John Cole
Lam Capital I saw recently ran a competition around engineering a greener fab. So at MITRE Engenuity, we hear more industry partners focusing on sort of environmental sustainability or sustainability in general manufacturing, power consumption within ships, footprint, that sort of thing. What's going on? What's your focus with the engineering greener fab?

9:14 | Faran Nouri
Yeah, we I'm glad you noticed that because we did have a day at Berkeley, they'll be partnered with our CTO office. And and as part of that, we had a call for the call to action of sorts globally for startups that were addressing sustainability, power consumption, to your point water usage and recycling and maybe chemical reuse circular economy. And for us, we use a lot of greenhouse gases in our edge processes and we're looking to transition out of these, a lot of the industry as a whole actually has really woken up to its carbon footprint, its significant carbon footprint, a lot of it is driven for us by our customers for them by their customers, customers and end market consumers a lot of times that have different expectations from the company. And there is this recognition that this is something we need to collaborate on, there's no one company that can locally optimize, it's a total lifecycle optimization. So you are going to see, we're going to see more collaboration, more collaborative effort across the ecosystem, when it comes to sustainability. So anyway, we, we did have this call for action too, about 50 companies globally applied to it. We also had a number of VCs, who were very generous with their time, and they helped us down select to something like 10, 11 finalists. And then on the pitch day, we had the VCs, listen to the pitches and Q&A from these companies and actually shout out to our winner that was xLight, they're developing a new new UV source light source and runner up was Memberion which is a water purification company. So those guys won, as as judged by our VCs, that and we made an investment, we're just closing any investment in xlight as promised.

11:47 | John Cole
That's great. So suddenly, there were two very different companies attacking two different problems. There is a strategy filter that you're kind of putting this through, right, but they're sort of addressing different pieces of the strategy, when you look at an investment like that, it's must be much more complex to try to pass it through different parts of a strategy filter than just to say, well, this isn't gonna make this much money for us, you know, yeah,

12:14 | Faran Nouri
Yeah, so when it comes to sustainability, that strategy filter is a little different for us. In this case, it was a competition. So we kind of removed our strategy and let the judges decide that, and the applicants were very, very diverse. And when it comes to sustainability, one of the things we're learning is that a lot of startups that are working on water, or solutions for reducing power consumption in a fab, are not thinking, actually, they're not thinking of a fab, they're, they're these more generic platform technologies. And like I mentioned, these companies have a really hard time penetrating semi industry, they're not even aware of it, they don't even know it as an industry. So this, this is partially trying to find companies outside semi, and bring them to semi bring these solutions to semi. And so so as the strategic filter gets a little different for, for sustainability, because it's more collaborative across the ecosystem. It's not as directly "is this relevant tomorrow to Lam?" You know, it's, it's more broad for the ecosystem. And we invested in a fund Emerald technology ventures to help us they are very sustainability focused, and they're going to partner with us and help us find companies that we can bring to semi. Because they're not the very, very few companies out there that are targeting semi sustainability, you got to bring these more generic platform climate tech companies into semi and then actually I want to put a plug in for S3, which is semi startup for sustainability, which is a SEMI-sponsored event that corporate venture arms of the companies like Lam are getting together to again, push these kinds of competitions and find startups that I can address the industry.

14:33 | John Cole
and that focus is broader than say, greener fab is that right is looking for solutions across the industry.

14:40 | Faran Nouri
Yes, yes, it is. It is broader and greener fab is already broader than Lam's tools. And then the greener fab and then the broader there may be customers in the data centers, you know, companies like Micron care about their what their customers in data center, and they are partnering with us in this s3. So, yeah, it gets pretty broad. I mean, semi industry touches everything.

15:14 | John Cole
Yeah. Well, I imagine it's not hard to sell in terms of the scope of impact, because, you know, you so much power on different semiconductor applications and touches, as you mentioned, touches almost every aspect of life. Right? When you talk about financial returns, though, you know, you said, you mentioned when you're describing greener fab, getting a number of institutional investors in a room, right to, to focus on this and talk about that, that seems like that is increasingly harder to do to get, say, non-corporate VCs to focus on semiconductor investments. Has, has that been your experience?

15:53| Faran Nouri
Very much. I mean, the the investments in semi industry, essentially dried up by by financial investors. And that's a that's a gap that corporate investors are filling. But you know, it's not enough. And I think with the CHIPS Act, and what we just learned about how critical semi industry is, I am seeing a lot of financial investors getting interested and looking at, at semi industry, unfortunately, a lot of financial investors don't have the know how, because once they stopped investing in this, you know, they've developed expertise in other areas. So there is there's not a lot of expertise in institutional investors in this space. But there is room for collaboration. I think, again, bring the institutional and corporate investors we know our space, we know what matters, and they can bring in deeper pockets and a different mindset to the table and come back in semi industry. And maybe some cases, it's it may be, you know, the xLight, for example, that we were just talking about financial investors are are looking at them, because they are attracted to some very disruptive technologies that may have outsized returns, of course, they're very risky. But that's the business of investing.

17:35 | John Cole
Yeah. I think you're right. Like, it sounds like a lot of institutional investors sort of already piggybacking off the work that you're doing by using, your you're in the market making investments, they're using that as a signal to make up for maybe some of the deeper diligence that they can't do on their own, which is, which has an interesting role.

17:56 | Faran Nouri
You know, and it's not just us, we really, there's an ecosystem, corporate venture groups, we work with Intel Capital, Micron Ventures, Samsung Ventures. You know, all of these guys, they have internal experts. And and we generally run POCs, which is something that an institutional investor can't do.

18:18 | John Cole
Yeah. So Faran what is the most rewarding part of being a VC? And why do you think it's important to invest in startups and for Lam capital to be in the market investing and looking at all these startups?

18:31 | Faran Nouri
Yeah, well, on a personal level, I love it, because it's really fast changing really keeps you on your toes, because you are constantly exposed to real smart people, innovative ideas. So in that sense, it's fast moving and exciting. Like any job, it's got its drudgery too, term sheets and closing and stuff. That part is not fun. But, but the exposure to new ideas is really exciting for Lam. And I'm a big believer in the role of corporate venture, and investing in startups because there is a lot of innovation that really cannot happen at big companies where we have shareholders to account to big customers to execute for and why I'd be very good at what we do. We cannot innovate on all areas. So it really gives us a way to access those those key innovations and bring them into the company in general the startup ecosystem investing in startups. It allows us to make more bets more risky bets, you know, I've had people tell me that they don't believe in corporate venture if they want to accompany people in big companies that if you want to technology, we'll just buy it. But you know, it really doesn't make sense to me, you don't get to have a lot of bets as you can with corporate venture, and some of them failed. And, you know, but you get to look at more disruptive, more out there, technologies.

20:28 | John Cole
And I imagine if you're just buying them off the shelf, you also don't get much of a say in how they're developed.

20:34 | Faran Nouri
Yeah, that's, that's actually a really interesting point, we tend to invest at a time where we can, we hope, form a relationship that's win-win. And we develop that technology through that partnership for us. And the often the portfolio company gains large customer in the process, but by the time it company has gone to market or you know, it's it's a little late for that so, and the world is moving is changing so fast. You have to, this is a different world than 20 years ago, so there's so much changing all the time, it's impossible to stay on top of all of that. So you do really need that your innovation engine to include scouting and corporate venturing.

21:31 | John Cole
Yeah, that's a great point. I'm sure it's a huge impact for for Lam Capital. And for Lam Research, the mothership.

21:40 | Faran Nouri
You keep trying to get better and have bigger sphere of influence.

21:43 | John Cole
Yeah. So, so recently, you know, been focused, one of the strategy pursued is sustainability and manufacturing. What's another strategy that you're working on for Lam Research right now.

21:57 | Faran Nouri
So one of the other areas that we focused on last year, and will continue this year, there was a lot of focus around supply chain. So we had, and not just last year, the past few years, we've looked at supply chain, and we ended up investing in a number of additive manufacturing companies and these additive manufacturing companies are laws to design and manufacture parts that are not possible to do through conventional means. And we're still, we're still a young corporate venture group. So a lot of our companies are still cooking, you know, in hard tech, it takes like 7-10 years to do an exit. But the one company that would be an example of success for us is Velo3D. This is metal additive manufacturing company, I knew the CEO, and founder from Applied Materials and etc. And then, so we knew the company early on, and, and once we invested in them, we started having these partnership agreements for them to develop some very specific parts for us that were complex that we were changing and, and anyway, long story short, they're now a supplier to us, you know, and becoming a supplier to Lam is no easy task, but they're now supplier to us and give us a technical differentiation. So it's a win for us in that sense. And they now have a big customer in semi industry and and they had spec IPO, very successful exit, so made us money, too. So that is an example of other things we're doing. We're also looking at advanced packaging as a very fertile area and hoping to have some success stories this year.

24:13 | John Cole
So you're rolling back to the the additive manufacturing, investment, when when Lam engages a company like that, you sign a term sheet, suddenly on the cap table, what happens on day two after that, that you can start to work together what sort of relationship forms?

24:32 | Faran Nouri
Generally, for us to invest ahead of that because for example, in additive manufacturing, there are a number of internal experts at Lam. So we bring them along during the during the diligence process. So, they already are familiar. In some cases, it's the opposite way they bring a company to was that's a start up they've been working on and they're like, "Hey, can you invest in this to strengthen the relationship?" So with Velo, they got involved in the diligence process, there was already some contemplation of projects we could do together. And then after the investment, the technical team started engaging with each other and coming up with ideas of what, you know, what are the kinds of things we, we do. The investment, what the investment does, essentially, gets a deeper connection to the company. This is not the case for Velo but we often take board observer or board seat. So we are active investors, you know, we, we are very conscious of not being heavy handed investors, or having terms that are onerous for the company or in the future may prevent them from bringing other investors. We have our best practices. But, but we do want to become active investors and develop those partnerships, which we often do after the but not in every case, but very often.

26:16 | John Cole
Yeah, it sounds like you work hard to align your interests with the startup to make sure that they grow.

26:21 | Faran Nouri
Yeah, yeah. And I think this is for every entrepreneur, when you accept an investor in your round, you better make sure they're aligned with you. And unless there is that alignment, well thought out, it sets up all sorts of conflicts, so that we try to do our homework upfront. That's great.

26:48 | John Cole
That's great. Faran, thanks so much for taking the time today to share so much about Lam and the great work you're doing in the ecosystem. Hope to have you back again soon.

26:57 | Faran Nouri
Thank you to John. It's my pleasure.