What's PR got to do with it? 
Ed Lee
Ed Lee has been around EDA since before it was called EDA. He cut his teeth doing Public Relations with Valid, Cadence, Mentor, ECAD, VLSI, AMI and a host of others. And he has introduced more than three dozen EDA startups, ranging from the first commercial IP company to the latest statistical … More » No New Startups? WTF?April 4th, 2011 by Ed Lee
Last week, I had a running e-conversation with several folks – from academia, the angel community, bloggers, reporters analysts – about what new EDA and IP startups were out there. “New” being less than a year old. One person more or less said, “aren’t you working with a new prototyping startup? That’s about the last one I’ve heard of.” Another person, the academician, said that there were none, that the startup groundswell was in cleantech and software apps. No one could think of a single “new” startup in our space. Why? Not why they can’t think of any new startups, but why none are out there or are so hidden that this group knows of none? Lots of reasons come to mind. Yeah, the big guys offer all-you-can-eat licenses and crowd out the opportunity for startup point tools; the financial community doesn’t see a decent ROI and don’t fund EDA and IP (although it looks like EDA can once again utter “IPO” without derisive eyeballs rolling); EDA is mature and there’s only incremental improvements to be made, thus no great leaps any longer. So are we wrong? Are there new startups out there? What technology areas? – end – Tags: angel investor, EDA, Lee PR, startups 10 Responses to “No New Startups? WTF?” |
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I work with EDA, IP, and fabless start-ups, there are plenty. Funding has changed however. Money is coming in from Canada, China, Israel, and Russia. My guess is that China will fund the most in the future.
D.A.N.
Good to know there are plenty. Was I talking to the wrong folks? Who are some of those? Agree that more money is coming from overseas.
Liz … I don’t know if you would count relaunches but if you do, Space Codesign version 2.0 rose up from the ashes in late July, 2010 after a reorganization and reincorporation.
There are new startups. Invarian is one of them. Yes, number of startups got reduced because of many reasons, and the main one is a lack of fresh and viable ideas. The lack of funding is just a consequence. On the other hand, customers, foundries, and potential EDA partners are not so open to cooperation as it used to be. Price/effort of entering the market is enormously high now.
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Hi Alex, Invarian…is this the DFM company co-founded by Chi-Song Horng awhile ago?
I am seeing the most new hardware startups in China and Israel…
The big question is, why are they not in Silicon Valley anymore? My guess is we have Enron to thank for that…
Throughout the 90’s and for the first half of the ’00’s, pre-IPO companies could grant stock options at par value – sometimes pennies per share – with no tax consequences for the recipient until the shares were sold at which time tax was due on the gain as it is for any investment. This enabled startups to attract and retain the very best talent by offering options that had no tax consequences until the company achieved IPO or acquisition.
Then Enron came along, and it was discovered that executives at some public companies were receiving options at far below market value – sometimes pennies per share – and this was being used as a substitute for compensation since the execs could exercise those shares cheaply and then wait to sell them until they qualified for long-term capital gains tax – thus avoiding about half of the taxation that would have been due had they been paid the same amount of money in normal compensation.
The knee-jerk reaction was swift and severe, and it resulted in companies of all types, both public and private, to have to tax any difference between an option’s strike price and the fair market value (FMV) of the shares as ordinary income in the year in which the options were granted.
There is a big difference between public and private companies.
With an option in a public company, if you have to pay tax on the difference between the strike price and the FMV, your risk of losing your money is small – you can trade your stock as soon as the option vests, the value of the stock would have to drop by more than 50% before the option vested for you to lose any money, and even then your loss is unlikely to be total.
With an option in a private company, if you have to pay tax on the difference between the strike price and the FMV, the time period where you might be able to sell the shares is unknown and unbounded, your risk of losing your money is large since the company may never IPO or be acquired, the company may fail completely, and your potential loss is total.
So beyond the first few months of operation where a startup’s fair market value is equal to the par value of it’s shares, it’s very difficult for a US startup to offer the meaningful amounts of shares that fueled the startup and internet booms of the ’90s.
So “bye bye” startups, we’ll see you in Shanghai and Herzilya.
Marc
P.S. This is my personal opinion and not necessarily that of my employer. I am neither an accountant nor a lawyer. This is not a substitute for tax advice.
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Great Perspective, Mark. Thanks for taking the time to widen the context here. China I knew about (but not about any specific startups). Israel also, huh? Thanks for the udate!
No, Invarian is a different start-up. Our company was founded by designers/EDA engineers with strong mathematical background to answer sign-off challenges in mixed analog-digital (SoC) designs. We address sign-off accuracy and matching of analysis numbers with real measurements. Our approach to analysis is corner-less and concurrent.
And we are in Silicon Valley BTW 🙂 while it is not so comfort place now as it used to be.
Ah, apologies Alex. Wow, analog signoff. That’s got to be an enticing segment in EDA still, huh? Curious to know…what makes silicon valley less comfortable these days? The funding (or lower level of funding) situation? Or ?????????
Gary….we hadn’t thought about relaunches, but sure, they count. It puts a new twist on the question, given the condition of the chip design industry.
Thanks, Liz! Our situation may be similar to Magillem, who inherited technology from their ancestor company Prosilog. (And Magillem’s story has been a happier one, with an un-/under-reported IPO in late November 2009 that should have captured more notice in EDA.) Space Codesign is an ESL EDA company and the only holdover in Space 2.0 is a co-founder who moved from Director to President. And we kept the name because it’s too cool to give up!
@Marc – bonjour from Montreal! (We are friends.) I’ve been immersed in startup literature (Zwilling, Suster, TechCrunch, etc.) and none of them raise valuation and tax issues for startup members when the company is private. So far, in the field, I concur. The concerns are a) what share of the company you own from the outset and b) the degree of dilution that you suffer as you take on funding and more investors to feed, round after round. And 5% of something when your company advances is better than 35% of nothing if it fails. (The latter principle also holds for public companies; just ask shareholders of Blockbuster, for example.)
Ed, funding would not be the highest concern. In the past, when EDA was in the process of rapid development, there were many “low hanging fruits”. As the whole industry is getting more and more mature, it leaves less opportunities for new tools. Moreover, price of decision is getting much higher. Of course, this affects our customers, our potential customers. They would prefer to stay with old proven tools (and their known deficiencies) as long as possible. As the result, new companies have less opportunities. For us there is nothing to whine about, this is just current state of EDA.