impact is this going to have on new start-ups because it’s going to be a
lot more difficult to bootstrap? And now they have to think about
creating a much larger revenue base which they never really had to
consider in the past.
You’ll hear widely varying opinions when talking to some of the
successful venture capitalists and entrepreneurs in this industry. I am
on one end of the spectrum, and Jim Hogan would be on the other end. Jim
has said, never raise more than 5 million, bootstrap, get yourself
profitable as soon as you can, build the technology, try not to build
the channel, and go sell the company. That’s the vision he has shared at the emerging company meetings for EDAC. His point is that you want to stay skinny, and that’s valid advice.
on the flip side of the coin, I’ve always felt that to tackle big
problems, and get big revenue, you have to spend to succeed. My
two previous employers went public – one while I was there, one a year
and a half after I left. And in both of those cases, we had raised north
of $30M in venture capital along the way. At Jasper, we’re nine
quarters profitable, bigger than my previous company a the time of its
IPO, and we too have raised more than $30M. So, I guess I’ve found the formula that works for me.
a way, Jim Hogan and I are both saying something similar. Unless you’re
going to win big, you better not raise much money. That is a very true
statement. But there are those of us that go for the big win, and
passionately want to conquer something harder. The cost is in market
penetration, and getting the methodologies established and proliferated
throughout the customer sites. It’s not just about technology. It’s
about shaping business models to take brand new solutions to the
love a quote by one of my big customers when I was asking him about
another company, a very small company that’s been around for eight or
ten years and has not broken the 5 million dollar revenue mark. He
said, “the problem with most EDA start-ups – and Jasper is a rare
exception because of your AE margin model - is they don’t have a
credible plan to cope with success. They can’t scale. Heaven forbid,
that one guy doing the experiment in one of our divisions says okay, we
want to use it, we have 300 designers, what are you going to do? Most
companies are too small and therefore cannot possibly cope with our
decision to use them; it becomes a huge problem.”
of new methodologies is an industry problem. Because of this, I think
idea to “build a tiny little company and sell off the technology” has
become less popular now, with both acquirers and venture capitalists.
They are looking for entities and teams that have the business acumen,
as well as the technology, to sustain them to a point where there’s a
lucrative exit, which would either be an IPO or later-stage acquisition,
once they’ve established true market success.
there are going to be three tiers of companies now. There’ll be the big
acquirers, and then there’ll be the medium-sized, let’s call them
IPO-plausible, or IPO-capable companies, that are still private but
profitable and generating cash, and they might become the acquirers of
the really small ones, the third tier.
those mid-sized companies grow organically, or inorganically by
acquiring others, up to IPO-state, or whether they themselves get
acquired depends on the situation. Most of my advisors say, if you think
you’re planning on getting acquired, you’re actually planning on
failing, and you better plan to succeed and go all the way, remaining
stand-alone. And if something happens along the way, if an acquirer
makes an offer you can’t refuse, and if it’s good for your customers and
good for your employees, then maybe you take it. But, you can’t plan on that.
does actually bring me nicely to one of the other points that you said:
the whole notion of the middle aggregating itself. How easy is that for
It’s extremely hard because you have a lot of capitalization table
issues to reconcile, with two sets of VCs and two different boards. You
have to be able to deal with shareholder issues. Usually, there would
have to be one company that’s substantially healthier than the other –
because you’re going to have to re-capitalize somewhere. Often one set
of investors is going to lose money on the deal because the combined
revenue stream and combined market size doesn’t even cover the paid-in
capital, meaning the amount the collective VCs have invested.
landscape of companies changes through survival of the fittest, meaning
the fittest companies acquire the not-so-fit companies – or shall we
say, the less-developed companies. It is very rare to see mergers of
private company peers. If the companies are equal peers, you have two
winners, and two leaders that have brought these companies to winning
status. It’s very difficult to marry them, culturally.
Assuming they can clear the financial hurdles, mid-size private EDA
companies are the ideal acquirers of small EDA companies with great
people and technologies. The smaller team gets acquired
into an organization that still enjoys the fun of being private and
being strategic and tackling big unknowns - taking market risks that are
easier because they’re not a reporting public company. The cultures are compatible. The
established channel of the mid-size acquirer already knows how to drive
adoption, and can significantly grow the revenue from the acquired
products. This scenario can be a huge win for everyone involved.
concludes part one of the interview. Look out for the second
installment that relates to the selling habits of EDA companies in about
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