With traditional sources of venture funding drying up, small EDA firms turn to the big companies that depend on their tools.
I have been in the EDA industry for more than 30 years and have been a part of several successful, and a few failed, startups. I sometimes think I've seen it all and lived through it all.
One thing that I know for certain: EDA startups and small companies have played a key role in driving innovation in a number of industries. EDA is fueled by innovation, which requires investment, expertise and a return on that investment.
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For a number of reasons, the task of building a successful EDA company has never been more difficult than it is today. In the past, EDA startups could rely on venture capital investment. Lately, that traditional venture investment route has slowed dramatically. More mainstream markets, such as social media and others, have siphoned off investment to EDA in exchange for lower barriers to entry and sky-high multiples.
The investment drought has created a dearth of innovation heavily influenced by the current structure and practices of the EDA oligopoly. The common practice of "all-you-can-eat" deals –– a blanket licensing agreement allowing access to every product in the portfolio for the duration of a contract –– is a double-edged sword for both consumer and vendor alike. On one hand, it provides financial predictability for both in terms of cost and revenue. On the other hand, it diminishes the incentive to innovate.
The basic premise of the deal is to remove risk from both sides and risk, for better or worse, is a component of innovation. These deals have a way of masking the internal return of innovation and driving development toward existing solutions and away from more risky endeavors.
In essence, the structure of these deals is to reduce the financial exposure to both sides and it works. It also reduces competition. All-you-can eat deals force smaller companies to compete against products in these portfolios whose marginal cost to the consumer is close to zero when compared to purchasing tools outside the "portfolio." While it forces smaller companies to offer a decisive advantage over a zero cost alternative, it creates a significant cost disadvantage for innovation. The net result is less investment due to this practice yielding less innovation.