“Silicon Valley is a misnomer” Rick Clucas told me, “there are no silicon companies in the valley anymore, apart from the old timers. The reason silicon start-ups fail so often – and they do – is that the funding is so difficult. Software start-ups and the new generation of dot coms find it a lot easier to attract investment. And that’s where the Silicon Valley VCs put their money. Not in silicon.”

We were sitting at a table in Rules, a restaurant in the Covent Garden area of London. Rules is truly unique, like Nelson’s Column or The Tate Modern. It’s a genuine English restaurant, the food it serves is genuinely English and the waitresses dress like English maids. The wine however, is not English, which is no cause for complaint.

Rick is the CEO of a silicon start-up, called Coresonic, whose technology I’ll discuss in a different posting in a few days. His previous silicon start-up, Ignios, failed through a drought of funding and that’s what he was bemoaning. The company had highly promising technology. Basically, it was a system-on-a-chip. It was multicore, but didn’t require any kind of parallel programming. It did the parallellizing itself on the chip, without much loss of efficiency.

Now I don’t know the technical issues in depth with this company, but think on this: The company was founded in 2003 when no-one was talking openly about multicore or the necessity for multicore. It wasn’t yet common knowledge that Moore’s Law was finally being violated (and not in a good way). So the designers of this chip were on the money, both in respect of it being a sensible development and in respect of timing.

It didn’t matter though. The company took too long to get a committed customer and the VCs pulled the plug. No other VCs were willing to step in. It’s a familiar story, and it should be, because that’s what happens to 80% of start-ups.

But silicon start-ups have it worse. According to Rick, silicon start-ups typically take 3 years to get to a demonstrable prototype and then it’s likely to take another two years to get a customer signed up. So that’s “5 years to cash” and the investment required will be around $5 million at current prices. Customers, such as mobile phone companies, car manufacturers or consumer electronics companies do not lightly use new chips. There are not many sales opportunities and the incumbent chip vendors are difficult to dislodge, no matter what technical advantages your silicon may have.

It should be no surprise that there are not many stellar start-up stories in the chip market. Even if you manage to break in, as ARM did, it takes years to get to volume. Contrast this with Skype or YouTube, or MySpace or Facebook. Such companies may be rare, but the time to value is short and the achievable value for the VC is very high. It’s simple mathematics really.

That’s why the silicon start-ups have a rough ride.