Transphorm Inc., an early-stage, California-based semiconductor company, announced yesterday it has raised $70 million to support the market expansion of its power devices made with gallium nitride (GaN). The investment round was led by the global investment firm KKR, which has a decade of experience investing in the semiconductor industry.
Yesterday’s announcement follows previous investments from prominent backers: Innovation Network Corporation of Japan; Japanese semiconductor manufacturer NIEC; Quantum Strategic Partners, an investment fund managed by Soros Fund Management; Kleiner Perkins Caufield & Byers; Google Ventures; Foundation Capital; and Lux Capital. Several existing investors also participated in the latest funding round.
GaN is able to vastly improve the efficiency of electric power conversion. Transphorm claims its power devices and modules can reduce energy loss by more than 40 percent, as well as simplifying the design and manufacturing of motor drives, power supplies and inverters for solar panels, data centers and electric vehicles.
For decades, silicon has been the dominant material for power management. Silicon is abundant and low cost and can operate with efficiencies above 90 percent. But after multiple iterations on the technology, silicon is reaching its physical limits of performance and efficiency. GaN, still in its early days, is already showing an improvement over the incumbent technology.
The problem is that GaN remains relatively expensive compared to silicon. Also, as a new technology, potential customers are concerned about durability and going through cumbersome qualification processes in order to use the material.
When Transphorm raised $35 million to develop its power conversion devices in 2012, the market was starting to take GaN products more seriously, but there were still unanswered questions around the reliability of the technology, said Bret Daniels, vice president of sales for Transphorm, in an interview.
To address this, Transphorm spent the last two years demonstrating the long-term reliability of its products through accelerated high-voltage and high-current testing. The company claims its products have been proven to be able to run in excess of 10 million hours, which is far beyond the lifetime of any system that would use the product.
“Our technology is as reliable as silicon,” said Daniels.
Today, Transphorm’s potential customers are less concerned about whether GaN is reliable and dependable, and more concerned about whether or not they can rely on GaN suppliers, he added. “That’s where companies like Transphorm have to demonstrate -- and are demonstrating -- the ability to ramp to volume production.”
To reach scale, the startup has formed strategic partnerships with two PV inverter manufacturers, Yaskawa Electric Corporation and Tata Power Solar. Yaskawa launched the first GaN-based commercially produced solar PV inverter, powered by Transphorm’s technology, in Japan earlier this year.
As a late entry to Japan's crowded residential PV inverter market, Yaskawa saw investing in GaN as a key differentiating factor, said Daniels. Because GaN is more efficient than silicon, manufacturers can make inverters at the same power level at roughly half the size. In Japan, smaller inverters have a distinct advantage, because they’re usually installed inside the home where space is limited.
In late 2014, Transphorm entered into a partnership with Fujitsu Semiconductor to produce its GaN products in Fujitsu’s automotive-class wafer fabrication facility in Aizuwakamatsu, Japan. GaN wafers are currently more expensive than silicon wafer competitors. But because a GaN chip is half the size of a silicon chip (which is what’s actually used in the end product), Daniels said Transphorm’s products would get to price parity “within a few years" as production ramps.
Commercial deliveries have already been made in Japan, China and Europe, but the startup has yet to break into the U.S. market. Transphorm is working with dozens of companies in the U.S., said Daniels, but solely in a research and development capacity at the current juncture.
At the same time, other companies developing GaN products are gaining momentum. For instance, GaN Systems Inc., based in Ottawa, Canada, closed a $20 million Series C financing round just last month. European GaN-based power switch manufacturer Exagan announced today it has raised $6.5 million to commercialize its technology.
Martin Fornage, CTO at Enphase Energy, said his company is “very interested” in GaN technology. “There are integration capabilities that are possible with GaN that are not possible with any other technology,” he said in an interview.
One of many advantages of GaN technology is that it allows inverter developers to build bidirectional switches, rather than use two unidirectional switches back to back, which reduces manufacturing time and cost, said Fornage. Enphase studied bidirectional power switches in partnership with Transphorm through an ARPA-E project a couple years ago, but the two companies haven’t had any commercial engagement.
Enphase is following the market closely, but has yet to embark on the cumbersome process of qualifying the technology, which can take six months to several years.
Long qualification times are one of the biggest barriers to wide-scale deployment, said Transphorm's Daniels. Yaskawa went through the process because the company wanted to bring a unique product to market. Transphorm hopes to leverage KKR’s expertise in the semiconductor field to expand its customer base.
The semiconductor space is difficult because of the time commitment and capital necessary to ramp up, said David Kerko, senior advisor at KKR. In 2005, the firm invested in the former HP semiconductor division, which is now called Avago and has gone public. In 2006, KKR invested in the former Philips semiconductor division, which is now NXP Semiconductors.
“If our firm had not spent 10 years in the semiconductor market, which has lots of different submarkets, we wouldn’t...have had the tools to assess Transphorm and [would lack] the confidence to make a bet on where they’re going,” he said.
KKR plans to concentrate resources in Transphorm’s sales and marketing capabilities in order to develop customer relationships around the world. So far, the international solar inverter industry has been the most receptive, but the partnership is pushing hard to expand into the U.S. data center market.
In data centers, Transphorm’s products have a power efficiency of up to 98 percent, resulting in energy savings of over 10 gigawatt-hours annually in a typical facility, which is equivalent to the annual electricity usage of 1,000 typical U.S. homes.
Kerko said his goal is for Transphorm to have a solar product in the U.S. within the next two years, and to have a data center power-supply product deployed somewhere in the world within the next two years. The automotive sector is also a target, but will take longer to reach because the platform cycle time is around five years, he said.
Since it was founded in 2007, Transphorm has raised $190 million, said Daniels. With the latest funding round, the company believes it is now on the brink of commercial viability.
“The investment from KKR gives us all of the runway we need now to grow into a self-sustaining business,” he said.