The Return of EDA Startups, Behemoths, Corner Stores, and Zombies

If the title of  today’s post sounds familiar, that’s not surprising. The most popular post in the history of The Breker Trekker blog, by a significant margin, was “An EDA Industry of Startups, Behemoths, Corner Stores, and Zombies?” published almost three years ago. I thought that it would be fun to revisit this topic in light of the changes in the EDA industry over the past three years. Have these changes fundamentally altered our world? Please read on to see.

I’ll begin, as I did in the original post, by noting that the EDA industry used to be divided into only three categories: major leaguers, minor leaguers, and startups. Nearly all EDA startups disappeared after three or four years, with three possible endgames: acquisition, initial public offering (IPO), or bankruptcy. The major leaguers, at one time or another, included Daisy, Mentor, Valid, Cadence, Synopsys, and Avant.

The major leaguers did some product innovation, but also grew in large part by acquisition, mining the startups for new technology, smart people, and expansion into new market segments. How well the acquisition worked for the major leaguer depended upon its ability to absorb and retain new employees with a different corporate culture. Many of the acquisitions worked out to the benefit of the startups as well, but the holy grail for any startup was to go public and become a minor leaguer itself.

It was rare for EDA startups to wind up in bankruptcy and complete failure. If they had any sort of interesting technology or a following among key customers, a major or minor leaguer would acquire at least the intellectual rights, possibly the source code and some key employees as well. They didn’t always make a full company acquisition that would entail taking on debt and other obligations. And so, good ideas tended to live on even when the startups themselves did not.

I observed in my original post that these three categories of EDA companies had expanded to four: startups, behemoths, corner stores, and zombies. Given the lack of interest in EDA among the financial community, startups were more likely to be funded by angel investors than venture capitalists. However, there were always good ideas arising and often someone willing to place a bet. IPOs were almost impossible, but acquisition was still a viable path for startups with interesting technology and smart people.

I also observed that the major leaguers had consolidated into three behemoths: Synopsys, Mentor, and Cadence. A billion dollars in revenue is pocket change in many industries, but the fact that three companies made it that far was a major milestone for EDA. The behemoths continued to acquire startups, although sometimes at valuations that benefited only the investors and founders. For this reason, some startups opted to stay independent rather than be acquired.

The upshot was that the “3-4 year” rule didn’t apply anymore, giving rise to the categories of corner stores and zombies. These comprised EDA companies that had been around for  years without being acquired, going public, or disappearing. The corner stores established a modest business that paid the bills, kept a small crew gainfully employed, and could continue that way for a long time. The zombies were also still in business after many years, but lived constantly on the edge, barely surviving rather than thriving.

So what has changed in three years? I think that the categories are the same, but there has been some movement. The behemoths have only grown bigger, with more than two dozen acquisitions small and large contributing. There are still EDA startups, although fewer have emerged during this period than I would like to see. Most of the zombies are still around although some, judging by increased hiring and spending, must have grown their business enough to be considered corner stores now.

A few former startups can also be considered corner stores at this stage. Many of the corner stores from three years ago are still independent, but a number of the largest and most successful (arguably, minor leaguers) have been acquired. Jasper and Atrenta are two commonly cited examples of successful mid-tier EDA companies now folded into the behemoths. Do you agree? Do you perceive the EDA industry differently? As always, we’d love to hear your comments.

Tags: acceleration, acquisition, applications, Atrenta, avant, behemoth, Breker, Cadence, corner store, coverage, debug, EDA, functional verification, jasper, M&A, major leaguer, mentor, merger, minor leaguer, portable stimulus, reuse, SoC verification, startup, Synopsys, uvm

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