Venturing Capital into EDA - January 06, 2003

Running with the best of them
With 20 marathons under his belt, distance runner Mike Schuh brings a lifetime of discipline and endurance to his work as a partner at Foundation Capital in Menlo Park, CA. Schuh, an electrical engineer, also brings close to three decades of involvement in software and design automation - including a significant stint as Vice President of Sales under Joe Costello in the early years at Cadence - to his sensibilities as a venture capital investor. Having played a part in the history of the industry, Schuh continues to help shape its future along with other VCs actively involved in EDA and IP today. He's on the Board at Barcelona Design and others from Foundation sit on the Boards of CoWare and Tensilica. For an industry as sensitive to the nuances and psyche of the investment community, it's useful to check in with Schuh as a seasoned and articulate observer.
Mike can tick off on one hand the principles by which he judges the potential success of an EDA start-up. The list starts with market opportunity. He says the market for design automation is small - say, a hundred-thousand-plus designers world wide - but each designer needs upwards of a couple million dollars worth of software to execute a design. The market opportunity is there, but needs careful consideration.
Next on the list is the intellectual property of the potential company as a basis for competition. Like many, Schuh says that if you've got an algorithm that's patentable, a clean data model, a serviceable user interface, an expandable domain, and a dozen or so PhD's to drive the thing - you're on your way to having the kernel of an EDA start-up.
Then there's the business model. According to Schuh, an EDA investment opportunity centers on a real problem being solved by really smart engineers. The solution that emerges from their efforts needs to be evaluated closely, however. If it's nothing more than an additional feature - for instance, one that can be attached to the front-end of the design flow - the investment community needs to refrain from large-scale involvement. Even if the solution is grander than that and represents a new stand-alone product in itself, it still may not warrant a new business launch. Only if the solution emerging from the problem-solving process is a new technology that can serve as the foundation of a completely new company, should the investment community step up and fund the start-up. Parenthetically, Schuh says an EDA tool is a software application - the companies who develop and sell them need to remember that mixing a service dimension into their business model can confuse the issue.
Fourth on the list is the all-important Team Factor. The early-stage company is usually populated by people who are “mad as hell” and want to solve a problem that they've seen as both troubling and ubiquitous. They bring passion and intelligence to the enterprise, but often need significant amounts of business savvy and counsel from their investors. That's a role that Schuh sees as a crucial one for someone like himself.
Finally, the Return on Investment Mantra - the ROI. Schuh says a legitimate return should be on the order of 10x to 20x the initial investment. It's important to feel that those levels of return are feasible, and just as important for the company and its VC backers to visualize the exit strategy. Is the goal to be acquired or to go public? Neither of those end games is feasible, he says, unless there is a pattern of growth and increasing profitability. Now that the “bubble economy” of the late 90's has passed, ”rational times” have returned, and according to Schuh, the investment community is once again demanding sustained profitability as a fundamental goal of any enterprise. Companies and VCs alike have learned from “the egregious investment errors” of the last few years and returned to sound fundamentals, he says. They now openly acknowledge that “nothing is worse than going public too soon.”
He says fledgling EDA companies need to stay focused and cognizant at all times of several underlying principles. What is the pain you're addressing and what are people willing to pay to take that pain away? What is the sales cycle for your product line - are you allowing for an average sales cycle of 6 months or more? And as you move to market, when you begin to turn the crank and produce product, will enough business come your way to move towards profitability?
Taken together, and applied with discipline and a view to long-term goals, Schuh makes the business of EDA sound safe and sane. Though he says it's unlikely that we'll see another EDA company, other than the several in existence today, move into the $1 billion dollar range, there are lots of opportunities in the $40 million to $50 million dollar range. “Good customers are willing to pay a lot for good software,” he says. In fact, Schuh is bullish about EDA in a VC kind of way. “The company will be valuable if you can capture enough of your market at the right price. [For a venture capitalist], EDA's the perfect investment.” That's advice you might want to take to the bank.
Industry News
Cadence Design Systems, Inc. announced that Faraday Technology Corp. has selected Cadence First Encounter Ultra for physical prototyping of its system on-a-chip (SoC) designs. Faraday design engineers will employ a "continuous convergence" design methodology, using First Encounter Ultra to generate and refine a virtual prototype of the physical design, obtaining feedback on chip performance and a functional, physically layout down to the wire level including die size, power, timing, module partitioning and placement, routing, and signal integrity detail.
The EDA IAP (EDA Integration Alliance Partners) announced that e*ECAD is the recipient of the 2002 1st Annual Flow Resource Provider Award. The award was created to promote engine independent flow development for both ASIC and SoC design flows. All current IAP members were considered and e*ECAD was selected based upon its independent offering of EDA tools from nearly 15 vendors.
Teradyne Inc. announced that National Semiconductor Corp. has purchased a Catalyst Tiger test system for characterization and multi-site production test of SoC devices with multi-Giga-bit interfaces. The Tiger system extends the Catalyst Family by providing at-speed testing for a variety of devices, accommodating up to 1024 digital pins and combining analog test capability, timing flexibility, and programmable speed. The system meets the speed and repeatability requirements for National's next generation high-speed communications devices.
Tower Semiconductor has enhanced its Fab 2 IP portfolio by licensing industry-standard design platforms from Artisan Components, Inc. As part of the agreement, Artisan will deliver a suite of memory generators for single- and dual-port SRAM, the SAGE-X standard cell library, and a complete set of general-purpose I/Os optimized for Tower's 0.18-micron CMOS process. These platforms will be available to Tower customers as early as the first quarter of 2003.
UMC and Xilinx, Inc. reported that the companies are on track to produce a new family of Xilinx programmable chips in the second half of 2003 using UMC's 90-nanometer chip-making process technology. UMC is preparing to manufacture the line of Xilinx FPGAs at its 300mm fab and has already produced an FPGA test chip. UMC's L90 process integrates nine layers of high-speed copper interconnect, 1.2V high-performance transistors, and low-k dielectric material into a single manufacturing process. Xilinx's investment with UMC in 90-nanometer manufacturing technology should allow the company to drive pricing down to under $25 for a 1-million-gate FPGA (approximately 17,000 logic cells).
Coming soon to a theater near you
Consumer Electronics Show - Even by Las Vegas' standard, CES is gigantic. Last year, over 100,000 attendees rolled into town to check out the “latest and greatest” in consumer electronics. Hosted by the Consumer Electronics Association (CEA) - an industry consortium of over 1000 companies - CES is North America's largest technology tradeshow and by some reports, the largest show of any kind. This year CES showcases 2,000 international exhibitors in wireless communications, gaming, digital video, extreme audio, accessories, CE fashion, consumer technology networking, broadband, mobile electronics, content media, delivery systems, new business technology, and the Internet.
Keynoters include Microsoft Chairman Bill Gates, Intel CEO Craig Barrett, Sony COO Kunitake Ando, Texas Instruments Chairman, President and CEO Tom Engibous, Dell Computer CEO Michael Dell, and Cingular Wireless President and CEO Stephen Carter. The six SuperSessions will include The Next Big Things in Consumer Electronics, The Future of Consumer Technology, Gaming, Wireless, Digital Download, and the Last Gadget Standing. It's exhausting just to think of it all - but, if get there you must, then hurry! The show is running this week from January 9th to the 12th.
(In a footnote to today's difficult times - To assist with the registration of 100,000 attendees from over 100 different countries, those who require a letter of invitation to obtain a temporary visa to attend CES can request a letter at the time of registration by going online at www.CESweb.org. Once the request is made, a response will be sent within 48 hours and a letter will be sent within three to four weeks. Translated - If you don't already have a visa in hand, you'll probably have to wait for CES 2004.)
C to RTL Synthesis Workshop - If you're interested in behavioral synthesis, this one may be for you. Future Design Automation is hosting workshops on three successive Fridays in January - the 10th, the 17th, and the 24th - from 1:30 PM to 5:30 PM at their offices in San Jose, CA. The sessions are geared towards algorithm developers, system architects, hardware designers, and verification engineers who want to learn how to create synthesizable RTL from C algorithm descriptions. ( www.future-da.com)
Mentor Graphics Workshops - Meanwhile, if you're planning to be in San Jose at some point in February, you may want to look into attending one or more workshops being offered by Mentor Graphics Corp. The sessions will include: analog and mixed-signal design, analysis, and verification using IC Suite and a foundry-supplied design kit (February 6th), high capacity circuit simulations using the Mach Suite for simulating SoC designs at the SPICE level (February 20th), physical verification using Calibre for deep-submicron design verification (February 25th), and mixed-signal SoC design using ADMS for mixed-signal simulation (February 27th). All of the workshops are free with advance registration. ( www.mentor.com)
Needham Growth Conference - A number of executives from EDA will be presenting at this year's 5th annual meeting, January 7th to 9th at the Palace Hotel in New York City, including Moshe Gavrielov, CEO of Verisity Ltd., Bernard Aronson, President and CEO of Synplicity, Inc., Doug Miller, Vice President of Finance and CFO of Synplicity, Mark Templeton, President and CEO of Artisan Components, Inc., and Joy Leo, CFO of Artisan. Needham & Company is a full-service investment bank and institutional brokerage firm. The Needham Growth Conference is heavily attended by leaders in technology, who then probably make their way quickly to CES in Las Vegas.
Newsmakers
The Design Automation Conference has appointed the 40th DAC Exhibitor Liaison Committee (ELC). The ELC serves as a counselor to the DAC Executive Committee on issues affecting exhibitors. Members of this year's ELC include: Steve Pollock, Anasift Technology; Donna Castillo, Cadence Design Systems; Mindy Powers, CoWare; Gabe Moretti, EDN Magazine; Tom Minot, Golden Gate Technology; William H. Joyner, Jr., Semiconductor Research Corp.; Peter Kalenak, Numerical Technologies; Larry Eberle, Synopsys; Mark Miller, Tera Systems; Darby Mason-Merchant, Xilinx; and members of the DAC Executive Committee.
Electronic Business chose Aart de Geus in a December 2002 cover story as its CEO of the Year based on his continuing track record as Co-founder, Chairman and CEO of Synopsys, Inc. and for having engineered the Avanti acquisition. Writing for the magazine, Bill Roberts said, “With his passion for technology and widely applauded integrity, de Geus has become a senior statesman in the under-appreciated EDA industry. Analysts praise the Avanti deal, which makes Synopsys the second billion-dollar EDA company, pitting it against No. 1, Cadence Design Systems Inc.”
Roberts adds, “The merger, however, is fraught with potential peril. De Geus must orchestrate the integration of two vastly different cultures. Synopsys is ethical and consensus oriented. Avanti was autocratic and tainted by criminal and civil charges that it stole intellectual property from Cadence. Observers say de Geus is up to the challenge of this merger and to leading Synopsys to multi-billion-dollar revenues.”
In the category of ...
Letters to the Editor - censored and abridged
November 25th - Let bylines be bygones
Phil Lindberg, Design Automation, Technical Services Department at The Johns Hopkins University Applied Physics Laboratory - “I've been keeping up with the industry using the newsletter for some time, though I must admit I still miss the depth and analysis of the EDAVision on-line magazine.”
Erach Desai at American Technology Research - “I noticed your lament about the number of publications closing up shop. I am also saddened that distinct venues like ASIC&EDA/ISD and ENuz have gone by the wayside due to advertising economics. Mind you, the executives at the electronics companies continue to make good money in good times and bad.”
December 2nd - Women in EDA
Anon in Large EDA Company - “I was disappointed to read the statistics about the lack of women in senior executive positions at the larger EDA companies - you cited that it is 'inappropriate to expect an increase in the number of women executives in EDA over the next few years.' I believe press like this is not helping the case for promoting women into executive management by reporting this type of 'fact.' I have met many qualified women in EDA in my travels. Your article just propagates the 'excuse' I have heard from male managers over the years that there are 'no qualified women to promote!'
Women engineers are facing an incredible hurdle to join the senior executive ranks in any of the technical fields, not just EDA. The 'reasons' I have heard over the years include 'Boys grow up playing Cowboys and Indians. Girls are playing Barbies, and therefore are not as competitive.' and 'Women just get married, have a baby, and don't come back to work, so why should I spend my time training a woman for upper management?' Rather than provide additional ammunition for the men in the EDA market to NOT consider qualified women for promotion to executive management, how about an article addressing the strengths that women offer and encouraging men to look beyond their 'Boys Club' to round out their executive staff?”
Anon in Design Consulting Firm - “Being a woman EE who has been in this industry for over 20 years, I found your comments on Women's Work to be interesting. I started out as an EE and evolved into a Software Engineer because there were so many more women in the field! I was tired of the unnatural environment of being the only woman engineer on a project (always the case as an EE) and enjoyed sometimes having other women peers as I got more into software development. I guess everything is relative.”
December 9th - Accellera Workshop
Georgia Marszalek at Valley PR - “Best coverage so far.”
December 16th - PCB West & HDI Expo
Ronda Faries, Marketing Development Manager at UP Media Group Inc - “Thanks for listing our shows in EDA Weekly. We've put together an impressive conference. However in economic times like these, there are no givens."
December 23rd - Into every life a little rain must fall
Graham Bell, Director of Marketing at Nassda Corp. - “Encouragement to reach out to those that are struggling. I was inspired.”
December 23rd - EDA Unplugged
Jonah McLeod, Director of Marketing Communications at Denali Software, Inc. - “Speaking as an individual observer, the most noteworthy event that occurred this year for me was the final demise of Avanti with its complete absorption into Synopsys. The great irony of this year also involves the threesome of Avanti, Synopsys, and Cadence. A week after Cadence accepted a $265 million settlement to end its civil suit against Avanti/Synopsys over theft of source code, the California Supreme Court ruled that Cadence's signing of a release with Avanti in June 1994 protected Avanti from legal action by Cadence.
About the only really exciting story in EDA in the past decade has been the conflict between Cadence and Avanti. Without that tension, I suspect the industry will not have the level of intense innovation that the conflict fostered.”
Ken Rousseau, Vice President of Software Development for Virage Logic Corp. - “As always, I enjoy the light and irreverent touch.”
Brett Cline, Vice President of Marketing at Forte Design Systems - “The right amount of cynicism and humor that this industry deserves.”
Vic Kulkarni, President and CEO at Sequence Design, Inc. - “Adding a bit of fun in our dry EDA lives was a great idea!”
December 23rd - DAC 2003
Moshe Shalev, CEO at NoBug Consulting - “Great summary, but on the link to DAC 2003, it may be better to point to www.dac.com instead of www.dac.org.”
Keeping tabs on Father Time
Agilent Technologies reported recently, “Those who want to know precisely when 2002 ends and 2003 begins should set their watches by the Agilent 5071A Primary Frequency Standard, the world's most accurate commercially available clock. This clock is so accurate it only loses or gains one second every 162,000 years. U.S. consumers can indirectly access the 5071A by linking to the time of day on www.time.gov.”
Hopefully, it's safe to presume that given the options of logging onto the website or watching that silly ball drop in Times Square, technologists everywhere chose the proper metric to determine exactly when to uncork the champagne.

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-- Peggy Aycinena, EDACafe.com Contributing Editor.