If the EDA Industry Has Zombies, What about Vampires?

In just a week, my last post has become the most-read since we launched The Breker Trekker blog. That’s fine with me; beneath the intentionally provocative title I had some serious observations on how the EDA industry has evolved over the last couple of decades. My thought for the week is “never underestimate the power of zombies to grab people’s interest.” Mentioning zombies make me think of vampires, since the two are so intertwined in popular culture. There are lots of articles on why we’re so fascinated with these two creatures, and what it means when one is more popular than the other.

I’ll bet that most of you are running ahead of me now and thinking, “Vampires? This must be Breker’s column about venture capitalists.” Indeed this is a post about investors and their role in the formation and fate of EDA companies. Sure, some venture capitalists (VCs) might be viewed as vampires or vultures. But in my personal experience I’ve seen a wide range of investors with very different motivations and methods of interacting with their startups, most of them quite positive.

We all know the “vulture capitalist” cliches. They’re only in it for the money. They always want to own more than 50% so they can take control whenever they want. They delay additional rounds of funding until the startup is on life support so that they can own even more. They boot founders who have put their lives into their company. And so on and so forth.

Of course, some of these things do happen. One of my closest friends was CEO and founder of a startup. One of his investor/board members took him to lunch one fine day and told him that he was being replaced. Just like that. I wasn’t close enough to the company to know whether that was the right decision, but I sure felt sorry for my friend. I also know cases where investors eager to get their money back forced an acquisition at a price that left the non-founder employees with almost nothing.

On the flip side, I’ve known startups where the investors stayed engaged and active long after the rest of the industry had written them off. Investors have helped with hiring, sales, marketing, access to financial services, and more. I’ve even seen investors waive liquidation preferences and voluntarily reduce their proceeds from an acquisition so that the rank-and-file employees would get some benefit.

Several things seems to work the best. It’s ideal if the startup can be bootstrapped or funded by “angel” investors in its early stages, perhaps turning to VCs later to fund growth. This increases the chances that the employees will own the majority of the company and not have to worry about a sudden takeover. Ideally, every investor should add some value to the company beyond just providing money. For example, a VC firm familiar with the semiconductor market and its players could help to drive business for an EDA company in its portfolio.

Above all, the investors must be aligned with the dreams and plans of the startup’s founders. If either group tries to force an acquisition, merger, initial public offering (IPO) or dissolution on a timeline that the other does not want, the outcome is likely to be messy.

Here at Breker, we like to think that we’ve done things correctly. We were bootstrapped as a consulting company, and went outside for funding only after a product was developed and being used by a few initial customers. This allows us to offer significant equity participation to new employees, an important recruiting tool. Our investors are involved and supportive without micro-managing. The future looks bright. We’ll keep you posted on our progress as The SoC Verification Company here and elsewhere. As always, we appreciate any questions or comments you’d like to share.

Tags: Breker, EDA, functional verification, funding, investors, SoC verification, VC, venture capitol

This entry was posted on Tuesday, September 3rd, 2013 at 4:19 pm. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.