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#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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#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>

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