#48DAC "Show Me The Money"


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Industry veterans Jim Hogan and Paul McLellan give a mini-MBA on how to start an EDA company.

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  • What is your view of the world? On the left - we have an example of the Louve. A collection of masterpieces that stands alone as one of the greatest collections of art in the world. Each work is complete within itself. Bounded by a frame that delineates the output of creativity of each masterpiece. The sum total of all of the works in this collection creates an aggregate value that is measurable and fixed by the individual contribution of each unit. On the right – we have the open market. A living entity – again, defined by all of the entities present. But in this case, the value of the market is based upon presence and interaction between units as active participants. Each participant is defined by interactions that can be modeled and characterized by behavior and relationship established in contextual interaction.
  • #48DAC "Show Me The Money"

    1. 1. <ul><li>James Hogan Paul McLellan </li></ul><ul><li>DAC 2011 </li></ul>
    2. 2. Is this a system or chaos? Aggregate: “… the properties of components sum to the whole ”
    3. 3. Expectation of Each Phase <ul><li>Seed </li></ul><ul><ul><li>System Architecture </li></ul></ul><ul><ul><li>Marketing Specification </li></ul></ul><ul><ul><li>Proof of Concept (Core Algorithms) </li></ul></ul><ul><li>Round A - Validation </li></ul><ul><ul><li>Build System Infrastructure (DB, UI, etc.) </li></ul></ul><ul><ul><li>Customer validation - Alpha/Technology Partners </li></ul></ul><ul><ul><li>Feature focused </li></ul></ul><ul><li>Round B - Production </li></ul><ul><ul><li>Productization - stability </li></ul></ul><ul><ul><li>Beta customer program </li></ul></ul><ul><ul><li>Performance and usability focused </li></ul></ul><ul><li>Round C - Scalability </li></ul><ul><ul><li>Support focused </li></ul></ul><ul><ul><li>Broader product proliferation </li></ul></ul><ul><li>IPO - Growth </li></ul><ul><ul><li>Focus - shareholder value </li></ul></ul><ul><ul><li>Growth </li></ul></ul><ul><ul><ul><li>Revenue +20% </li></ul></ul></ul><ul><ul><ul><li>EPS 20% </li></ul></ul></ul><ul><ul><li>New follow on products </li></ul></ul><ul><ul><li>Global expansion </li></ul></ul>
    4. 4. Round Time 0 to 6 years $ Invest $ Outgoing Rev Heads R&D Heads Marketing Sales Key Hires Seed Tech Validation 0 – 18 months 500K to 1.5M 0 - 1M Min 1 Alpha Customers Less than 10 Min salary 0 Architect, only R&D typically technical founders Round A Feature Validation 12 -24 months 2 To 5M 2-5M 2 – 3 Beta Customers 20-30 5-10 1 CEO 1 Bus Dev 2 to 3 FAEs Round B Stability & performance 18 to 36 Months 5 To 10M 5-10M 10’s of customer logos 30 20-30 1 CFO 1 VP Marketing 5 to 8 FAEs Round C Proliferation Channel 12 to 24 Months 10 To 20M 20-40M Multiple sales/year 30 30-40 1 VP Sales 3 to 4 sales 10 to 20 FAEs IPO /Public Continual Growth in shareholder value 48-ongoing 0 Growth of +20% Revenue & EPS 30 40 to 60 G&A for public company Customer Support
    5. 5. Nominal Return Expectations Companies Expected ROI At Exit Exit Market Value Seed Round 100 Negative N/A $0M Round A 20 1:1 3:1 Asset sale Co. Sale $2-10M $25 - 50M Round B 10 Negative 5:1 Asset sale Co. Sale $2-10M $50-100M Round C 5 Negative 10:1 Asset Sale Co. Sale $2-10M $100-200M IPO 2 Depends Public $+250M
    6. 6. Success Attributes of Software Start-Up Enterprise <ul><li>Luck </li></ul><ul><li>Raise minimum cash, a low burn – never run out of cash! </li></ul><ul><li>Adaptable and scalable founding and executive team </li></ul><ul><ul><li>Always better if the team has had prior success </li></ul></ul><ul><ul><li>Need for staying power – it might take six + years </li></ul></ul><ul><li>Capitalization structure allows room for qualified investors and employee stock option pool. Typical A round target ownership: </li></ul><ul><ul><li>Investors 40 to 60% (preferred), typically 50% </li></ul></ul><ul><ul><li>Employee pool 15 to 25%(common), depends on the founders backgrounds, typically 20%. </li></ul></ul><ul><ul><li>Founders and seed capital 15 to 40%, typically 20 to 30% </li></ul></ul>
    7. 7. Success Attributes of Software Start-Up Enterprise <ul><li>An adaptable business plan – it always changes </li></ul><ul><ul><li>Doesn't use a lot of cash to get to technology and market validation </li></ul></ul><ul><li>Core competencies that need to be there by Round C </li></ul><ul><ul><li>Market specification & solution architecture </li></ul></ul><ul><ul><li>Product specification & technical architecture </li></ul></ul><ul><ul><li>Product development </li></ul></ul><ul><ul><li>Integration & test </li></ul></ul><ul><ul><li>Packaging & field deployment </li></ul></ul><ul><li>Quality of the investment group that brings : </li></ul><ul><ul><li>Marketing and operational expertise </li></ul></ul><ul><ul><li>A network that can help recruit and introduce to customers </li></ul></ul><ul><ul><li>An ability to funded over multiple horizons </li></ul></ul>
    8. 8. Success Attributes of Software Start-Up Enterprise <ul><li>Discrete and defendable market niche </li></ul><ul><ul><li>Technology discontinuity </li></ul></ul><ul><ul><li>Supply chain dis-aggregation </li></ul></ul><ul><ul><li>Fast growing segment </li></ul></ul><ul><ul><li>Market segment not adequately served </li></ul></ul><ul><li>A differentiated technology that has a sustainable competitive advantage </li></ul><ul><ul><li>Patented where it can add value </li></ul></ul><ul><li>Timing </li></ul><ul><ul><li>More EDA startups fail by being to early to market than too late </li></ul></ul><ul><ul><li>Old technology/methodology often lasts one more process generation than you expect </li></ul></ul><ul><ul><li>Being early by one process node is two more years of cash </li></ul></ul>
    9. 9. Success Attributes of Software Start-Up Enterprise <ul><li>Attractive areas for EDA </li></ul><ul><ul><li>Analysis of something that was always second-order before </li></ul></ul><ul><ul><li>The “ends”: system-level design and software, DFM and yield optimization </li></ul></ul><ul><ul><li>IP, chips are not so much designed as assembled </li></ul></ul><ul><li>What customers will pay for: </li></ul><ul><ul><li>IP, it ends up “in” the chip so it’s mission critical </li></ul></ul><ul><ul><li>Optimization, especially power. It shows through to the end-user </li></ul></ul><ul><ul><li>Verification and other productivity tools: affects bottom line and can be quantified (ROI easy to establish) </li></ul></ul><ul><ul><li>Cheaper: not so much (“cut-rate heart surgeon”) </li></ul></ul>