montalvo1.bmpIt’s getting harder to fund chip companies.

Venture capitalists say the investment payoffs are lower than they used to be. Few companies go public at $1 billion valuations anymore. Mercury News chip expert Dean Takahashi has a good summary of the sector’s challenges.

This sentiment follows the one expressed by venture firm Sevin Rosen Funds, which returned money to investors last week, saying the investing environment is terrible. Sevin Rosen has focused more on chip and other hard-core infrastructure companies than other venture firms — another explanation for why they may be feeling more pain than others. They’ve invested in few consumer Internet companies.

Chip start-ups account for 10 percent of the money poured into all start-ups, compared with 22 percent in 2001. The average amount of money invested per deal is down to $9.4 million, from $11.9 million.

Even then, the start-ups keep coming. For example, Dean reveals one stealthy chip company Montalvo Systems, a fabless chip company reportedly working on a low-power chip for portable electronics. it is backed by some heavyweights like Vinod Dham, “father of Intel’s Pentium” processor. The company raised $4.5 million from Leapfrog Ventures last year.