The ESD Alliance will host another of its startup evenings with Jim Hogan, entitled Crossing the Chasm: Building a Startup to a Successful Exit . It is actually the evening in the middle of EDPS, the Electronic Design Process Symposium, as a sort of dinner keynote. And yes, dinner is provided. Yesterday I previewed EDPS . As usual, the ESD Alliance evening features Jim Hogan, this time in conversation with Amit Gupta. He was the co-founder of Solido Design Automation. Since his company was acquired by Mentor, I think we can say he succeeded in doing just that. Even more so, since he was also the founding CEO of Analog Design Automation (ADA) which Synopsys acquired in 2004. The event will be on Thursday, September 13th, from 6-9pm at the SEMI Headquarters in Milpitas. Note: if you think SEMI is still on Montague Expressway, they moved to Milpitas. As it happens, I interviewed Amit on just this topic myself, a few years ago. The challenge for an EDA startup is not to get to $1M, since everyone has some friends. But getting from there to $5M to $10M to $20M is really hard. When I talked to Amit, he had broken his advice down into a series of lists. The first list for the early startup phase, the second list to get across the chasm to proliferation, and then finally what to do after that (basically decide if and how you want to exit). I assume you have read Geoffrey Moore's book Crossing the Chasm . If not, then rush out and buy it immediately. The key point is that the reason early adopters buy a product is not the same as what will get the mainstream market to buy it. You need a more complete product. For example, early adopters will do things like writing their own technology files. The mainstream expects the foundry to provide them. Before the Chasm Find out what the customer pain points are from technology enthusiasts: of course, this means that you need to have done a good job of networking to know who have access to the technology enthusiasts who you trust. Validate customer pain points across many technology enthusiasts in many different companies. Don't design a solution for only one company/enthusiast. This is perhaps the most important step of all. I would say that technology startups in general, and EDA startups in particular, fail most often by developing interesting technology without validating that it solves a problem that people are prepared to pay real money for. The analogy I like is that you need to develop "penicillin, not "multivitamins". Ensure that there is a large enough market if the product is successful. I have a phrase "Intel only needs one copy" that describes products that are only used occasionally in the design cycle. These are very difficult to proliferate into a sizable business. Ensure that there is alignment between technology enthusiasts, company pain points, and what companies will pay for. Avoid science projects for technology enthusiasts. I guess we could call that "Intel doesn't need any copies at all". Figure out a business model to capture the value being delivered (floating licenses, site license, royalty...). If you are developing an EDA tool, the answer had better be some sort of time-based floating license. You can dream up your own license model, but at the very least it will slow the sales cycle if not kill the deal. It is like opening a restaurant and charging people by the hour instead of by the dishes they order. It's not totally stupid, it's just not the way that customers are used to. With 1-5 raise any investment needed to execute. Today, VCs expect some level of development to a minimal product with some key customers prepared to say they will buy it. Developing software with laptops and cloud doesn't require much investment so you should be able to get started with sweat equity. Innovate to solve customer pain points with 10X differentiation from competition, especially from the big guys (yeah, like Cadence) who can plausibly say they will have it next year if it is just 2-3X better. EDA customers are very risk-averse, and buying from a startup is risky, by definition. But semiconductor nodes are ruthless, and you can't ignore new problems. The only question is will you go to a startup or will your primary EDA supplier come through with what you need? Hire a product development team capable of delivering product with the customer in the loop. Amit's secret with both ADA and Solido was to do this in Saskatoon. The government pays a lot of the cost, and although it may be hard to persuade people to move there (it has Canadian winters), the people already there are not keen to move away. Develop minimum viable product (MVP). Iterate until successfully deployed minimum viable product with technology enthusiasts (early adopters) finding product-market fit. Establish needed partnerships with big EDA companies to integrate the product into customer flows (Cadence Connections, Synopsys InSync, Mentor OpenDoor, etc). This will also require customer references. Survive any market downturns, there will probably be at least one period of weakness/trauma. Execute fast enough that competition doesn't catch up, the market window doesn't pass (although being too early is often more of a problem), and you don't run out of money. Fail fast on stuff that isn't going to work out. Don't burn up your cash. Close first purchase orders. The only validation that counts. Crossing the Chasm If and only if (aka iff for mathematicians) you successfully complete all these steps do you have a shot at crossing the chasm. Then you can read Geoffrey Moore's next book Inside the Tornado (which uses Synopsys in early Design Compiler days as one example). This is the point at which you throw gasoline on the fire. In my opinion, it is the critical decision point in an EDA startup (and many other types): when do you ramp sales? Too early and you run out of money paying a sales force who cannot sell the immature product. Too late and...this never happens. I have only had one experience of being "inside the tornado" and that was at Ambit. One year we did $840K in revenue. The next year we did $10.8M. Read that story in my recent blog post on the 20th anniversary of our acquisition by Cadence . Amit's advice was that you need to: Mature the whole product solution for deployment to a larger mainstream audience (proliferation). This probably will require other partners, such as foundries or other tools in the design flow. Develop a sales recipe for short evaluations at a high success rate. Aim for 90 days from discovery to close, not 9 months Build out the company: engineering, AEs, marketing, sales, G&A Deploy and support the larger customer base Grow How to Handle Success Then in the third phase, Amid has a very short list: Be acquired, probably by Mentor, Cadence, or Synopsys. IPO...this never happens, especially post Sarbanes-Oxley which requires the company to be much larger than in the past. Grow profitably, generating cash (Denali showed it can be done for many years before Cadence made them an offer they could not refuse). More Rules For the biggest picture of all, the whole company, there are also a few rules. First, never take more than $10M in investment ($5M is better) or it will be really hard to sell in a way that makes everyone whole (carve-out and cram-down are not good words). Patents are important, research shows $300-900K per patent in additional exit valuation over and above forward revenue multiple. But don't do too many since they are expensive to file and expensive to maintain. Market the company too, not just the product. Sell the sizzle as well as the steak. ESD Alliance Evening Once again, the event will be held on Thursday, September 13th from 6-9pm at the SEMI Headquarters in Milpitas. If you want to come, then register . If you are registered for EDPS then this is included and I don't think you need to register a second time. Date: Time: Thursday, September 13, 2018 Dinner: 6:00 pm – 7:00 pm Amit and Jim: 7:00 pm – 9:00 pm Location: SEMI 673 S. Milpitas Blvd Milpitas, CA 95035 Cost: ESD Alliance Members: Free Registered EDPS Attendees: Included Non-Members and Guests: $50 Sign up for Sunday Brunch, the weekly Breakfast Bytes email.![]()
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