Venture capital for EDA is dead

Thank you for starting a discussion on this important topic. From my perspective, it is critical to understand the broad space of private financing, which includes angel and seed funding, early-stage venture capital, late stage venture capital, and the typically much larger private equity financings. Given the structure of this space, seed and early stage venture have recently proven to be an adequate match for EDA starts given their capital requirements and exit prospects, and indeed there continue to be successful investments from well-matched funds as recently as 2008. -- Dr. Juan-Antonio Carballo, Partner, IBM Venture Capital Group.

All the barriers are falling such that the EDA industry will end up much like the publishing industry. Barrier 1 is the cost of entry. As you''ve all said above, it does not take much capital to develop software anymore and much of the technology can come out of universities directly or in partnerships. Barrier 2 is the cost of marketing. The cost of marketing EDA software is also falling as customers increasingly use websites, blogs, forums, and other networking tools to do product research and can even do product training and evaluations over the internet. Barrier 3 is standards and interoperability. Although this is still the highest barrier of the three, there are many more standards than ever before that allow small niche tool companies to "plug-n-play" replace established tools. If anyone is interested in my thoughts on this, you can check out tinyurl.com/5n5anv .

Paul, you and I both know that EDA is a dead parrot. In the words of the famous skit... "This parrot is no more! It has ceased to be! It's expired and gone to meet its maker! THIS IS A LATE PARROT. It's a stiff. Bereft of life, it rests in peace, if you hadn't nailed it to the perch it would be pushing up the daisies! It's rung down the curtain and joined the choir invisible! THIS IS AN EX-PARROT!"

I thoroughly enjoy your critical and telling blog topics. Paul?s better question might be ?Is venture capital any longer necessary to EDA?? As he points out, the cost of entry into this software-based market may be low enough that large capital infusions are no longer required. It is generally accepted that the kind of innovation that drives real change comes from thinking outside the box to cause a paradigm shift in the way we look at things and approach the problem. The best technologies are often disruptive and are brewed by mixing a small group of visionaries with some sweat equity and a little seed money. The driving force is the quest to find a better way, not simply to increase market share and increase profitability. I agree with both Pauls, and in fact realized that VC money for EDA was evaporating five years ago. As an invited panelist at the MIT Enterprise Forum ?No Money Down: Raising Capital From Unconventional Sources?, I explained how our low power development was funded by Small Business Innovation Research (SBIR) awards. Since the magnitude of the project exceeded individual funding limits, the project was subdivided and funded by three separate agencies along with some internal R&D funds. The product development has met all objectives and is ready for early adopter customer use. Benchmark tests have verified the potential to significantly reduce semiconductor power consumption using behavioral synthesis and analysis techniques to output synthesizable RTL for both datapath and control. The next step is to partner on a design project where meeting a tight power budget is the key to success and will validate our solution beyond question. Once this is accomplished, bootstrapping and partnering will have been proven once again to be a viable alternative to venture capital. We welcome partnership with designers with the guts to explore a new approach to solving their power challenge.

The EDA industry has been a bordello of proprietary squirrellyness for decades. There are no significant standards, only poor constructs and hard-to-use implementations....much like the embedded software industry (which is now on its back with its legs in the air like a dead bug). Without tight standards and interface definitions, the EDA industry will also be a dead bug. Is there any wonder that VCs won't invest in this mess? This is no surprise at all...it's old news.....the EDA industry's problems are all self-inflicted...

What would be really helpful is if you would sponsor a web meeting for both VC?s and us hardware people who really need the capitol to get our product to market.

Thanks for the great anlaysis. I really enjoy your thoughtful and thought-provoking blog! While the "fund it yourself" model might indeed work for .com companies, I don't see us getting any "significant" EDA functionality without private or corporate VC funding. The reason? The factors are the same as the earlier arguments you made about open source EDA software. You can't very well build "significant" enablers in your garage after hours. (Actually, I think it would be really cool if some upstart proved me wrong about that!) Unfortunately, I think we're going to see EDA innovation coming through Universities or internal CAD groups (remember, the ones that were disbanded in the early '90s?) and they'll be commercialized by acquisition. I do wish we'd see more of the kind of industry-academia collaboration that has been such a hotbed for new products in Europe.

Of course, many of the characteristics of the EDA industry discussed here - high risk, low barriers to entry, limited market opportunity and questionable endgame liquidity possibilities, suggest that VC firms should be cautious. As long as the industry continues to be in the mode of small incremental improvements, it is not an attractive target for private equity investment. As one of Paul's earlier posts clearly documented, this industry only really shines when some true innovation forces an inflection point in design methodologies. After carefully reading all of Paul's excellent posts, I'd imagine that most private equity types would be running away from EDA.