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