January 06, 2003
Venturing Capital into EDA
Please note that contributed articles, blog entries, and comments posted on EDACafe.com are the views and opinion of the author and do not necessarily represent the views and opinions of the management and staff of Internet Business Systems and its subsidiary web-sites.
Peggy Aycinena - Contributing Editor


by Peggy Aycinena - Contributing Editor
Posted anew every four weeks or so, the EDA WEEKLY delivers to its readers information concerning the latest happenings in the EDA industry, covering vendors, products, finances and new developments. Frequently, feature articles on selected public or private EDA companies are presented. Brought to you by EDACafe.com. If we miss a story or subject that you feel deserves to be included, or you just want to suggest a future topic, please contact us! Questions? Feedback? Click here. Thank you!

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.

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-- Peggy Aycinena, EDACafe.com Contributing Editor.




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